May 19, 2015

Travellers International Hotel Group Inc (RWM)'s 1Q15 net income relatively flat

In its quarterly report to the Exchange, Travellers International Hotel Group Inc (RWM) said its 1Q15 net income was at P1.74b or merely 2% ahead of the comparable 1Q14 number. This resulted from the 5.3% decline in overall revenues to P7.58b which in turn came after gross gaming revenues (which comprised about 90% of total revenues) fell 5.7% to P6.8b despite the increase in gaming table count. The company highlighted its greater focus on the mass market which, unfortunately, was affected by the road and air traffic due to the ongoing Skyway construction, the Pope’s visit last January, and the long weekend leading to the Holy Week.

RWM has turned cautious on the VIP segment. Net revenues declined at a faster pace (-7.4% YoY as the proportion of promotional allowance to gross revenues rose to 8.9% in 1Q15 from 6.5% in 1Q14.

On the other hand, direct costs declined 2.9% with the lower gaming volume, and lower taxes and licences related to gaming. General and administrative costs was cut by 11.8% YoY as marketing expenses declined by 40% on lower rebates.

Notwithstanding the lower cost, EBITDA dropped 7.8% to P2.41b with EBITDA margin shrinking to 31.8% in 1Q15 from 32.6% in 1Q14. What enabled RWM to grow its bottomline was the 30% decline in interest expenses (as a result of debt retirement) and income taxes.

Our take: We have anticipated the weakness in RWM's VIP gaming business as it faced greater pressures from competition with Bloomberry Resorts Corp ramping up operations and as Melco Crown (Phils) Resorts Corp goes into full operations. Operations should also take some further toll as the bad traffic condition in the area should persist until the completion of the NAIA Skyway construction which is slated this year.

The 1Q15 came within expectations and accounted for 25% of our full-year estimate. However, we will review our numbers given the persisting weakness in the VIP gaming business and upon better clarity on the company’s tax provisions. – WealthSec