Fitch forecasts three years of negative cash flow for Universal

Fitch Ratings expects Universal Entertainment Corp (UEC), the Japanese parent of Okada Manila, to register negative free cash flow for at least the next three years due to the collapse of the VIP segment in the Philippines, the migration to online channels, and macroeconomic headwinds, according to its report published on October 3, 2026. The agency places the annual Adjusted EBITDA at around JPY19 000 millones (US$120 millones) until 2028, below the threshold required to cover interest and capex.

Fitch's assessment of negative cash flow for Universal

Fitch has revised its rating scenario to assume subdued EBITDA and negative free cash flow in 2026 and 2027. The consultancy estimates the annual EBITDA at approximately JPY19 000 millones (US$120 millones) until 2028; the figure is below the nearly JPY20 000 millones (US$127 millones) that, according to Fitch, UEC needs to cover interest costs and capital expenditure. The agency warns that this dynamic will reduce liquidity margins even though the company does not face significant debt maturities before August 2029.

"Competition, online migration and macroeconomic headwinds are likely to continue limiting integrated resort revenue and EBITDA recovery," states Fitch's report.

Okada Manila as a determining factor in UEC's credit profile

Fitch notes that the performance of the integrated resort Okada Manila in the Philippines remains the key factor determining UEC's credit profile in the coming years. Currently, Okada Manila represents around 53% of the group's revenues, which leaves the company concentrated and exposed to the performance of that asset.

The report highlights specific changes in the customer mix: the VIP segment accounted for only 20% of Okada Manila's gross gaming revenue (GGR) in 2025, down from 35% in 2023. The decline of the VIP segment was not compensated for by the mass segment, which is characterized by lower average spending, and the resort registered weak operational results in the second quarter of 2026.

Recent operational results and UEC's response

UEC reported Q2 2026 figures showing the magnitude of the deterioration in the Philippines: Okada Manila's net sales fell by 13.0% year-on-year to JPY30.1 mil millones (US$191 millones); Adjusted EBITDA fell by 62.5% to JPY2.74 mil millones (US$17.4 millones), and the operating result was a loss of JPY1.37 mil millones (US$8.7 millones).

The company announced that it will focus efforts on the mass Filipino market and its new online gaming platform to attempt to improve OKada Manila's performance. Fitch, however, describes the domestic online market in the Philippines as "nascent" and still without material contributions to the resort's revenues.

Limited diversification despite recovery in Japan

Universal also manufactures pachinko and pachislot machines for the Japanese market. Fitch acknowledges that the pachinko and pachislot division provides "some diversification and short-term recovery potential," but believes that UEC's outlook remains limited by the structural decline of the market and the high concentration of revenues in the Philippines.

The agency also rates UEC's management as having "unpredictable risk appetite, erratic strategy, and lack of clear measures to address the deterioration in its integrated resort operations," casting doubt on management's ability to execute an effective recovery plan.

Competition and online migration in Entertainment City

Okada Manila faces increasing competition within Entertainment City, the resort district in Manila Bay that concentrates the supply of brick-and-mortar casinos. Simultaneously, customer migration to online platforms reduces demand for high-spending in-person experiences. UEC has launched its own online platform, but Fitch still considers it insignificant to compensate for the decline in the VIP segment.

In practical terms, Fitch estimates that UEC's trajectory will depend on two simultaneous variables: the stabilization or recovery of the VIP mix at Okada Manila and the ability of the online operation to generate material revenues within several quarters.

Financial implications and risk calendar

Fitch emphasizes that, even with annual EBITDA of JPY19,000 million, UEC would have limited room to manage interest and capex, pressuring its liquidity. The agency indicates that there are no significant debt maturities before August 2029, but continued operational weakness would reduce the company's financial cushion.

For investors and creditors, the group's exposure — with Okada Manila representing approximately 53% of revenues — is a central point of risk. For suppliers and clients in the Filipino ecosystem, the evolution of the resort and the online market will be variables to watch.

What stakeholders should monitor

For operators and technology suppliers, the priority is to observe whether UEC's online platform scales and if the mass Filipino market grows sufficiently to offset the VIP loss. For credit analysts and funds, the key will be tracking quarterly operational cash flows and any change in management strategy that could improve customer mix or reduce costs.

Okada Manila and its response to the competitive environment will be early indicators. Changes in the contribution of VIP to GGR and the progression of quarterly Adjusted EBITDA will be determining figures in the upcoming earnings reports. It is also advisable to follow the pachinko and pachislot division in Japan as a factor for revenue diversification.

"Fitch has revised its rating case to assume subdued EBITDA and negative free cash flow in 2026 and 2027," adds the agency in its analysis.

Market players will have more data in the coming quarters to assess whether the company can redirect its revenue profile or if the period of negative cash flow extends beyond the horizon estimated by Fitch.