Rating agency Fitch recently downgraded the outlook for Japan Universal Entertainment Corp (UEC) from "stable" to "negative," primarily due to the bleak prospects of its large-scale casino resort investment in the Philippines, "Okada Manila."
Fitch noted that the project's operator, Tiger Resort Leisure and Entertainment Inc (TRLEI), saw a sharp 19.6% year-over-year decline in total gaming revenue (GGR) in the first quarter of 2024, amounting to 7.1 billion pesos (approximately 125 million USD), with a sequential decrease of 9.1%. The significant reduction in VIP gaming activities, coupled with a decline in key tourist sources from China and Korea, has put pressure on overall performance.
Fitch stated that Okada Manila lacks clear signs of recovery, expecting UEC's profit metrics (EBITDAR) to remain weak, with rising debt leverage and diminishing debt repayment capacity, weakening its overall credit status. Besides poor performance, the casino's foot traffic continues to be sluggish, with both the high-end and mass markets in stagnation, and the local gaming industry in the Philippines becoming increasingly competitive, further elevating the uncertainty of future earnings.
Additionally, although UEC's pachinko business in Japan has relatively stable revenues, it also faces issues such as product delays and a shrinking player base. Fitch anticipates that while new product launches may lead to a short-term rebound, Japan's aging population will continue to constrain long-term growth.
Overall, the lack of a clear recovery path for Okada Manila is becoming a major drag on UEC's overall rating performance.
