Melco Resorts & Entertainment Ltd (MLCO) 2011 Q1 法說會逐字稿

Good morning and thank you for participating in the first-quarter 2011 earnings conference call of Melco Crown Entertainment Limited. At this time, all participants are in a listen-only mode. After the call, we will conduct a question-and-answer session. Today's conference is being recorded.

I would now like to turn the call over to Geoffrey Davis, Chief Financial Officer of Melco Crown Entertainment Limited.

Good morning. Thank you for joining us today for our first-quarter 2011 earnings call. On the call with me today are Lawrence Ho, Ted Chan, and Nick Naples. I would also like to introduce Ross Dunwoody, our Vice President of Investor Relations. His contact information is provided on our earnings release.

Before we get started, please note that today's discussion may contain forward-looking statements made under the Safe Harbor provision of federal securities laws. Our actual results could differ from our anticipated results.

I will now turn the call over to Lawrence.

Thanks, Geoff. Our first quarter results represent a new record for quarterly consolidated net revenue as well as record quarterly rolling chip volume and mass table drop. Our reported EBITDA for the quarter was negatively impacted by unfavorable VIP hold, but the underlying fundamentals remain strong.

Our hold-adjusted consolidated EBITDA increased again for the seventh consecutive quarter and continues to demonstrate solid growth. Geoff will provide additional color on our first quarter result, but the numbers illustrate our continuing progress in maximizing the profitability of our high quality portfolio of assets and in demonstrating market leading operating leverage.

Consistent with our operating trends throughout 2010, we continue to expand our highly profitable mass market business and fully participate in the fast growing VIP segment, while maintaining a disciplined approach to junket commissions. We also delivered meaningful improvements in operating leverage in the first quarter, as we expanded our gaming volumes while containing expenses.

We remain committed in 2011 to improving our operating efficiency through, amongst other things, diligent cost control and operating synergies, which should continue to drive operating leverage and improved profitability.

Consistent with our objective of developing the highly profitable premium mass market business, our non-gaming entertainment amenities, including The House of Dancing Water and Cubic Nightclub which opened on April 1, 2011, continued to drive incremental visitation at City of Dreams. Additionally, our customer database now has over 650,000 members and continues to grow, further allowing us to strategically target profitable customers now and in the future.

GGR in Macau has continued to show strong growth, with a year-over-year increase in April of 45% and May is off to a good start. As such, we continue to see upside in both our mass markets and VIP gaming revenues, as well as incremental revenue growth from our non-gaming operations for the remainder of the year.

The House of Dancing Water continues to sellout and remains at breakeven on a standalone basis, while continuing to contribute to our casino, food and beverage and hotel segments. With the addition of Cubic as well as the opening of the Hard Rock Cafe scheduled for year end, we believe that our entertainment offerings will continue to differentiate City of Dreams and drive visitation and revenue.

Our hotel occupancy on available rooms, average daily rates, and the average daily theoretical value of gaming customers staying in our rooms continues the upward trend, as a result of our hotel rooms optimization strategy, which commenced in the latter part of 2010.

With approximately 14 media and travel trade related road shows completed year to date, coupled with the opening of The House of Dancing Water and Cubic, our market awareness levels have increased meaningfully. We continue to conservatively manage our balance sheet while taking advantage of market opportunities to position ourselves for growth, as demonstrated by our recent renminbi note transaction and our ongoing refinancing of the City of Dreams project loan.

As we've said before, we believe that the Macau gaming market is driven by supply. Though it's still early days, we believe the opening of our newest neighbor on Cotai will have a beneficial impact on the market and further drive the center of gravity to Cotai.

Our outlook for Macau remains positive, particularly with the upcoming infrastructure projects and our optimistic outlook for the Chinese economy. At the same time, the Macau government has established a strong regulatory framework and is taking solid proactive steps in managing Macau's growth, while promoting the diversification of Macau's economy.

So back to Geoff.

Thanks, Lawrence. We reported approximately $121 million of adjusted EBITDA in the first quarter of 2011 on $807 million of net revenue, yielding a consolidated EBITDA margin of approximately 15%. This compares to first-quarter 2010 EBITDA of $87 million and revenue of $568 million, reflecting increases of 39% and 42% respectively.

We estimate that the Macau market-wide rolling chip volume increased 55% year over year in the first quarter of 2011 as compared to our 60% year-over-year increase. On a sequential basis, rolling chip volume for the market increased approximately 12% against our 18% increase.

Similarly, market-wide mass table GGR increased 29% year over year against our 57% increase, and on a sequential basis, the market was up about 8% versus our 17% growth.

As we've done previously, we'll provide hold-adjusted EBITDA for the first quarter. Assuming that we held at 2.85%, the mid point of our range, across our entire rolling chip business, our first-quarter 2011 EBITDA was approximately $174 million and the hold-adjusted consolidated EBITDA margin was approximately 20%. This marks the seventh consecutive quarter of improving EBITDA and EBITDA margin on this basis.

The VIP hold-related EBITDA impact in the first quarter resulted from below theoretical hold versus the expected range, as well as from an unfavorable mix of VIP hold. In other words, we held well in our revenue share programs, where we share the upside, and held poorly in our turnover based programs, where we fully absorb the impact of low hold.

If you recall, our hold-adjusted EBITDA was approximately $100 million in the third quarter of 2010 and our fourth-quarter 2010 EBITDA was approximately $125 million. The 39% sequential increase in the first quarter, hold-adjusted EBITDA to $174 million reflects strong gaming volume growth along with our cost containment efforts, which are helping to drive the significant operating leverage that we've demonstrated in the first quarter.

Operating leverage is a key focus this year and the first quarter got us off to a good start. On a sequential basis, our overall gaming metrics increased approximately 18% while our hold-adjusted EBITDA increased approximately 40%, yielding an impressive flow through rate. Going forward, we look to continue to drive increased gaming volume over a relatively stable cost base to further drive operating leverage.

As you know, we recently completed a 355 million US dollar equivalent RMB offering, priced at an interest rate of 3.75%. This was the first RMB bond by a NASDAQ listed issuer. We also previously announced that we are currently refinancing our existing City of Dreams project facility. This fully underwritten transaction is currently in general syndication, and as a result, we are unable to say much more on the subject. Our aim, however, is to move from a project loan to a more standard corporate loan that places fewer restrictions on our cash and cash flow.

The RMB bond as well as the debt financing, are consistent with our long-term approach to our capital structuring, which ensures that we have the financial flexibility to take opportunities as they present themselves.

As we normally do, we'll give you some guidance on non-operating line items for the second quarter of 2011. Depreciation and amortization expense is expected to be approximately $85 million. Corporate expense is expected to come in at approximately $20 million to $22 million. Net interest expense is expected to be approximately $30 million. We do not expect any meaningful pre-opening expense or capitalized interest in the second quarter of 2011.

That concludes our prepared remarks. Operator, back to you for the Q-and-A.

(Operator Instructions).

Larry Klatzkin, Klatzkin Advisors.

Now that you guys seem to have Macau well in hand, are you still looking for something on the international basis outside of Macau?

Yes. We've always talked about being interested in the bigger jurisdictions in Asia. Our focus obviously is in Asia -- between Melco and Crown, the two principal shareholders, as well.

But as you know, it's been well documented and well reported about the various progress with regards to both Taiwan and Japan. So I think at this moment in time, we continue to reach out to the various places. We're just waiting for the green light signal in terms of whatever bidding process there is.

All right. And as far as the Galaxy opening, I guess it's really too early to talk about the effect of it. But what have you guys done to really prepare for that and for the upcoming opening at sites 5 and 6?

Well, Larry, as we've always said, we believe that the Galaxy opening is great for Macau and it's even better for Cotai. I think it's early days, it has only been a few days, but we have certainly seen traffic versus -- it's typically a rather quiet time of the year, but we've seen traffic hold up at our property quite well. If anything, it's increasing quite a bit.

So I think, overall, we think the Galaxy opening seems like a very good one. And I think our -- we really turned down our marketing budget in the early parts of the year in anticipation of it. But so far, we think things are going smooth and we have -- we will be prepared. But at the same time, we don't plan on doing anything differently.

Because I think at the end of the day, the two market segments are somewhat different. I think City of Dreams is built to target a higher end, whether it's VIP or a premium mass player, whereas Galaxy is -- it looks like it's going to be a great Chinese-focused mass or even grind mass property.

All right. Thank you, Larry. And again, congratulations on the great results.

Thanks a lot, Larry.

David Bain, Sterne, Agee.

I guess, first, Geoff, did I hear the adjusted EBITDA correctly? Can you repeat that one?

$174 million.

$174 million, okay. And then can you give us an idea of the split percentage of commission versus revenue share, kind of where it's been and where you think it could go for the remaining quarters?

The split at City of Dreams is about 50-50, and Altira is now about two-thirds, one-thirds. Yes.

Okay. So City of Dreams has come --

One-third being revenue share at Altira and two-thirds being commission based.

Okay. So you have now more revenue share now at City of Dreams than previously?

Yes, City of Dreams is at 50-50.

Okay. And then, Lawrence, Macau Studio City, on the last call you stated that you think the recent movement with the parties made you a little bit more optimistic. Can you give us a sense, since that time, if you're more optimistic than before and maybe some color around that?

David, in the past, for the last year-and-a-half, two years, we've been very focused on turning the Company around and really ramping up City of Dreams. So I think if you look at our operating results now and the operating margins, we're certainly doing a lot better.

So in the past, we had very little financial capability or management bandwidth to pursue something about Macau Studio City. So I think at this moment in time, we're still talking to the two shareholders, and I think we are, hopefully, making some kind of way on that front. But there's nothing new to report at this moment in time.

Okay. If there were something new, if things progressed there, just so -- I'm trying to get an understanding of how it could work logistically. Land has been granted, because you guys started construction a while back, correct?

Macau Studio City, yes. I think the -- between the two existing shareholders, which is a Chinese party and then also a US hedge fund backed party, there was some significant foundation work that was done probably three years back.

Right. So I guess what I'm trying to understand is if things go smoothly, if you could actually be potentially up and running with something like that ahead of some of the other pontificated developments in Cotai or is it also going back to the government in trying to get table approvals because at that time there weren't the table approval or the table caps in place when construction started?

Well, David, I think it's a bit early to talk about some of these things because everything is going to be subject to government approval. But given the state of the site of Macau Studio City, if the two shareholders were to restart construction, I think it would certainly would have a head start over some of the other sites that haven't even got land approvals yet.

Okay. Great. Thank you very much.

All right. Thanks, David.

Cameron McKnight, Buckingham.

A question for you, Lawrence. Now that -- now you guys are basically ex CapEx, how are you thinking about some of the unused space you have at the City of Dreams site?

Are you taking about the 1.5 million square feet that we formerly called the apartment hotel?

Yes.

Yes. I think over the last few months we have dusted off the plan to really revitalize it. But I think given that our hotel occupancy are all over 85% now -- I think the average is around 90% among the hotel rooms at City of Dreams -- I think pretty soon we need to make a decision whether we're going to start that project or not. Our view is that it's probably unlikely that the government will approve apartment hotels. After all, they've been looking at it for the past five years.

So I think the latest design that we've looked at is really potentially in looking at doing a -- adding additional hotel rooms, being a pure hotel. It's a big project because to give you a comparison, Altira is only a million square feet. And the developable space at City of Dreams, which we call phase 3 now, is 1.5 million square feet. So with 500,000 square feet potentially in the podium and a million square in the hotel tower.

So there's quite of bit of stuff that we can do there. And obviously subject to government approval, maybe, hopefully, past 2013, some additional gaming tables or -- and obviously it could be another 800 plus room hotel tower. But at this point in time, we're still studying, and we certainly have an eye on some of the other developments in Macau.

Got it. I guess it's nice to have some flexibility. On your -- in your prepared remarks, Lawrence, you noted that May is off to a good start. Would you mind elaborating a bit?

Well, I think -- at this point in time -- April was end heavy because it was -- this year was connected to Golden Week, which is the first week of May. I think typically May will be top heavy. And nearing the end of the month, it's going to be a bit quieter before we get into the summer season.

But so far, I think some of the reported statistics and numerous research analysts have published what they view about the first two weeks happened, but it's operating nicely and it's in line with the growth rates for the rest of the year so far.

Okay. Got it. Thank you very much.

Thank you.

Joe Greff, JP Morgan.

Two quick questions here. Geoff, thanks for providing the hold-adjusted or normalized EBITDA for the quarter. Would you be able to break that out between City of Dreams and Altira?

And then my second question is for you, Lawrence. I just want to clarify some of your earlier comments with respect to marketing expenses and just sort of the operating expense structure currently. If I heard your comments correctly, you're not anticipating elevating any kind of marketing expenses or promotional activity given new competition on Cotai. Is that a correct interpretation of what you said earlier? Thank you.

The bulk of it, as you'd imagine, is at City of Dreams, Joe.

Okay.

Yes, Joe. It's Lawrence here. I think, again, we strongly believe that Macau is a supply-driven market, and with Galaxy's opening, it will further drive the center of gravity into Cotai. And it certainly helps to start building up the clustering effect that Macau Peninsula has.

So I think -- and with some of the joint initiatives between the three operators on Cotai right now, we have a -- and we have joint shuttle buses going from one property to another -- we believe that the mass is coming into Cotai is only going to increase over time. I think just looking at the other operators who are not in Cotai right now, all of their future plans are in Cotai. So that really solidifies the thinking that Cotai is the future of Macau.

With regards to some of the marketing expenses that I talked about, I think operating leverage and margin is a continued focus of ours. And since our -- our main focus at City of Dreams is on the premium mass segment. We've been able to do that by turning off some of the marketing expenses.

We don't anticipate -- after seeing Galaxy's opening, and we walked through the site significantly, which, by the way, is a very good property. I think it's certainly a property that was built for good value for money.

We think that there is very little overlapping between the two segments, and therefore, I think -- on the marketing expenses side, I think we constantly get bombarded with questions about VIP commission wars or marketing -- marketing wars. We see that as -- the likelihood of that happening is very low, especially since Galaxy has joined the Cotai pact on VIP commission. And even on mass marketing front, we've been very successful with our reinvestment rate.

Great. That's helpful. Thanks so much.

Thank you.

Grant Chum.

A quick question on Altira's margins. It looks like the VIP hold sequentially was broadly similar, 2.9% last quarter and 2.8% this quarter. And the mass revenues grew very strongly. So I'm just wondering why there was quite a significant sequential decline in the Altira EBITDA. Were there any items we should have been aware of last quarter or this quarter that would explain that drop in margin despite the top line growth?

Okay. It goes back primarily to that mix issue I mentioned in the prepared comments. On a normalized basis, Altira is closer to about $50 million.

Even -- all right. Okay. So even with 2.8%, the split in terms of the mix of hold would have given you like a $9 million uplift in normalized?

That's right.

I see. Okay.

But there is just a slight impact of normalizing from 2.8% to 2.85%. But a major piece of that would also be related to mix.

Okay. And in City of Dreams, you're sort of opening a nightclub as well on a sequential basis. So any comment on the fixed costs on a sequential basis in terms of how the City of Dreams fixed costs base changed from quarter to quarter.

The City of Dreams fixed costs were largely stable. As we mentioned in the last quarter that a wage rage increase towards --

The end of the year.

-- toward the end of the year that captured just a part of the fourth quarter. So there was a bit of headwind as we got a full quarter of the wage rate increase. But largely stable and other than a small increase from Cubic, stable going into the second quarter as well.

I see. And just lastly, just interested in the mass market growth that you've seen, which has been very strong. What's the -- what are the differences in growth rates between, I guess, what you call the premium mass and the grind? Is it growing much faster at the premium end versus grind? And if so, do you see that trend continuing?

I guess, in the COD side, we pretty much focus a lot in the premium mass side. So in terms of growth, the premium mass is significantly higher than the grind mass growth in COD there. I think it continues to grow in that segment because in the last -- as you know, in the last nine months, we've focused lot on the, what we call, reward based or loyalty programs (technical difficulty) focus in that particular segment. And I think it would be the database that we created in the last two years, we have a lot, lot we know of room to grow that particular area, Grant.

Okay. Great. Congratulations on the results.

Thanks a lot, Grant.

Richard Klotz, Moore Capital.

Congratulations on a great quarter. On a normalized basis, we saw some significant operating leverage. I'm just wondering where we can kind of go from here, given the market's going to continue to grow. We should still see strong revenue growth for MPEL. So how should we think about operating leverage going forward?

As Lawrence mentioned, we aim to keep our cost structure as stable as possible. With gaming volume increases, there's always some associated cost that goes along with driving that top line. But generally, we're looking to show operating leverage downstairs as we keep a very tight lid on expenses.

So the trends we saw this quarter is something that's potentially repeatable in the future, or how should we think about the range of operating leverage that you look at?

Well, I think it really depends on the pace of that top line growth. But I think the rule of thumb is usually around 1.5 times. We've obviously done a lot better than that and will seek to be closer to what we delivered this quarter than the normalized number.

Great. Okay. And on the hold, is that normalized now kind of going into this quarter?

I think that, Ted, year to date, we're right at --

2.8%.

-- 2.8%, as of today.

Okay. So that's come back a bit in Q3, that is.

Yes.

Great. All right. Thank you.

All right. Thanks a lot.

Bob Ryan, Elliott Management.

That 2.8% figure that you just cited, that's VIP across properties or was that just for City of Dreams?

That's across the whole Company.

Okay. And I was just looking for a little bit of help with the arithmetic, with the algebra on the hold-adjusted EBITDA. Presumably, the principle driver here was the low VIP hold at City of Dreams. But if I adjust from 2.5% to 2.85%, 35 basis points on close to 19 billion of volume, I get to about $66 million of revenue.

Could you help me out? If some of those numbers are correct, could you help me on how the $66 million of gross gaming revenue translates into something approximating $50 million delta of the EBITDA? And I recognize that's not the only contributor to the adjustment, but to the extent there are other meaningful contributors, if you could speak to what they were?

Sure. It's a rather detailed calculation, but really what it boils down to is that we had our -- while the normalized number was just marginally below the theoretical range, it was where we had the hold and we experienced low hold in our rolling chip programs and high hold in the revenue share. So the benefit of high hold we shared with the junket, whereas the low hold we absorbed ourselves in the rolling chip programs.

Conceptually, I understand that. Just, I'm wondering if you have $66 million of gross gaming revenue, presumably at a minimum -- I don't know, 40% of that goes to taxes -- so I'm just struggling to bridge from the reported $121 million or so up to the $174 million.

Well, perhaps this will help you out a bit. I can give you a sense that about 40 came from the hold percentage whereas the program mix was closer to 12 or 13.

Okay. And when you adjust for hold and arrive at $174 million, you're adjusting for hold across VIP and mass?

That's just for VIP.

That's just for VIP? If you held normally across the board, do you know roughly what the number would have been?

Well, we view our hold percentage in mass to be something that is really not an anomaly of luck at the table, that's really a reflection of improvements in the experience that we're providing to our gaming customers. So it's not normalized because we view that as being something that's sustainable going forward.

As you have noticed, we've increased the expected hold percentage range in our mass business at City of Dreams. Perhaps, Ted, you can provide a little color on what's driving that increase.

I think in the mass gaming side from last year, second quarter, third quarter, we substantially improved the hold to 21%, 22% hold currently I think predominantly due to a couple reasons. But I think the enhanced hand-rate improvement in the premium mass gaming area is that pretty significant reason for the improvement of the hold percentage on the gaming floor.

Okay. And one last question or comment. It seems like the Galaxy Cotai property has been very well received to date, and presumably they're aggressively targeting the -- or trying to attract the mass customer. What do you think you have to do, if anything, to up your game, so to speak, that is to offer an even better experience to your mass customer to maintain or increase your market share in light of the Galaxy opening?

I think in the last nine months, as I said earlier, we significantly increased our focus in the segmentation of the mass. Even though we said that we focus on the mass gaming, but (technical difficulty) mass gaming area, and we focus a lot on the premium side of the mass gaming.

And we did a lot on the loyalty program rather than a heavy promotional activities for the grind mass, typical in the marketing side. So it's more about reward basis than a heavy promotion side. So, we believe that the segmentation of COD is quite different from our neighbors in Cotai. So I believe that this is the strategy of the Company going forward.

Thank you.

Simon Cheung, Goldman Sachs.

I've three questions. First of all, I think, Lawrence, earlier you mentioned that this will really lead to overlapping on the customer profile between the COD and the Galaxy Macau. Just wondering whether you can elaborate a bit more on that and maybe describe briefly the customer profile between yours as well as the Galaxy Cotai?

The second question related to -- can you give us a rough breakdown of the VIP and mass market gaming table? And there seems to be some talk that COD and Altira are going to be adding new junkets. Wondering if you can confirm that? And last one is, are you planning to add any facilities in COD other than the Hard Rock Cafe that you have mentioned earlier? Thanks.

On your first point about the customer kind of differential between City of Dreams and Galaxy, I think we had probably two good days of tour and it's a very nice property. But I would think that, when you look at City of Dreams, it's much more contemporary and I think probably more on the sophisticated side.

And that's why it was built to target a customer that is higher end. So both on the VIP front, on the premium direct VIP front and also even on the mass end, it was designed with a higher end customer, a higher average daily theoretical customer in mind. And, whereas, the Galaxy property looks great, but it certainly looked like a property that was built to compete with Grand Lisboa.

So I think -- with that in mind, I think that's why the clientele in our opinion is different. But the important thing, at the end of the day, is that supply will drive further demand in Macau and it's great that we have another new property opening on Cotai. And now that the clustering effect can take place, I think it gives visitors to Macau and in particular visitors going into Cotai, even more reason to go there. And certainly, Cotai will continue to be a better multi-stay market.

On the second point --

The second point, the mix at Altira was about a 167 VIP, 40 mass. At City of Dreams, 186 VIP and 227 mass.

Okay.

Last question about new junkets, yes, we are planning to add one more junket in the early part of this year.

And if that's the case --

But, Simon, as we said --

Yes.

Simon, as we said in the past, I think given the ramp up of City of Dreams mass business over the last 12 to 18 months, we have really hit a equilibrium point with regards to giving tables, switching tables from mass to VIP. I think the return that we're getting on -- unless, it's a really fantastic junket group that has a proven track record and a major player in the junket industry, I think we would be hard pressed to convert anymore mass tables into VIP.

I understand. Okay. Maybe just one quick follow-up question on the mass market. Do you feel that your number of hotel room is a constraint for you to further grow your mass markets because, at the end of the day, I think Cotai only have like 20% odd of the hotel rooms overall in Macau?

Again, this is again the segmentation question. We focus a lot on the premium side of the mass so that we will be very careful in looking to the reward program that we've given to the customers.

In doing so, as in the early remark, we said that our ADT or our room revenue with the theoretical value for the customer put in the rooms increasing all up trends in the last two quarters. That means we are looking to rationalizing a higher value customer in the room. So again, this is more about our focus in the luxury segment of the mass side.

Or maybe another way to ask the question, how much of your room is actually comps?

Currently, toward the VIP side, of course, and most of the rooms are on the comp side. So in terms of mass, we have the average about 400 rooms per day comp'd to the premium mass customer.

Simon, it's Lawrence here. Let me just jump on two points. I think you said earlier on that Cotai only has 20% of the rooms. I think there is around 20,000 hotel rooms in Macau right now and Cotai will probably have about 6,000 by year end. But I think the more relevant guide is that how many of those 20,000 rooms are actually of a decent quality because the 20,000 actually includes quite a bit of the one or two star hotels that nobody would ever stay at anymore.

So I think in terms of competitive and new built hotel rooms is actually you have a majority of those rooms being in Cotai now. Because if you look at some of the properties on the peninsula side, whether it's Grand Lisboa -- I think it has about 400 odd rooms. MGM has 600, Wynn has a 1000. Those three properties combined is less than the Venetian alone. So I think that certainly the quality hotel rooms right now is residing in Macau.

And on to your comp question, we have addressed this in the past. To us, it certainly makes more sense to comp the rooms to our players because we -- again, we use the average daily theoretical in terms of how we comp it. And if we were just selling a room to the public for $200, $250 or $300 a night, whereas the average daily theoretical customer, we're probably getting a $1000 from them. So it's really simple math and a no brainer business.

Right. Okay. Great. Thanks a lot.

Thank you.

Grant Govertsen, Union Gaming.

A couple of questions for you. On the rolling chip turn over at City of Dreams, could you kind of give us a sense on -- looks like your punching above your weight there in terms of volume growth? Could you give us a sense for how that growth might breakdown between direct and non-direct business?

And then secondly, as we see the mass market influx positively here in the market and as you think about the recent bill passed that raises the gaming age or the government had once said that in conjunction with that bill, they would institute perhaps a policy of no slots in residential areas. Could you give us a sense for whether any of the Mocha Clubs are at risk at this point? Thank you.

For the direct against the junket business in the COD side, we are in the range of getting 18 (technical difficulty) at this moment our first quarter, which is (technical difficulty).

In terms of the new rule on the slot parlors in Macau, I think the regulations have been in operation in the last two years. If we read it carefully -- and most of the Mocha Clubs is actually near or in the hotels, whether it's five star or four star. So if you look at the new regulations possibly been passed, then we will have possibly one venue being at risk, which is only -- it houses only 150 gaming machines there, representing a minimal impact on Mocha.

One positive note is, we also identified two more sites suitable within that regulations in pipeline this year, so that there will be a good replacement site for any possible negative impact on that regulations.

Great. Thank you.

We have no additional questions at this time. I would now like to hand the conference back over to management for closing remarks.

All right. Thank you everyone for participating in the call today. We look forward to speaking with you again next quarter.

Thank you for joining today's conference call. This concludes the presentation. You may now disconnect and have a great day.