Moody’s Investors Service says it expects adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) for Macau casino operator SJM Holdings Ltd to reach approximately HKD4 billion (US$510 million) next year. That would be a fourfold increase in year-on-year terms, as the ratings agency forecasts SJM Holdings will produce adjusted EBITDA of around HKD1 billion for full-2023.
The firm posted negative adjusted EBITDA of nearly HKD3.10 billion in 2022.
Moody’s said in a Monday note it expected SJM Holdings’ earnings “to increase significantly over the next two to three years, following the removal of quarantine restrictions for travellers from China in early January this year.”
The ratings agency added: “The policy change drove an almost immediate surge in visitors to Macau, mainly from mainland [China] and Hong Kong, and in Macau’s gross gaming revenue (GGR) in January and February.”
February was a second straight month with GGR above MOP10 billion (US$1.24 billion), after previous choppy performance in GGR amid periodic Covid-19 alerts and periodic adjustments to travel rules concerning Macau’s border with Zhuhai in neighbouring Guangdong province. Most tourists to Macau come from mainland China, and the bulk cross via the land border with Zhuhai.
Moody’s said its estimates assumed Macau’s mass-segment GGR would return to about 75 percent of its 2019 level in 2023, and fully recover in 2024. But the ratings agency expected the city’s VIP gaming segment would “remain anemic in both years because of tight regulatory restrictions on the operations of junkets that previously drove the VIP business”.
SJM Holdings’ Grand Lisboa Palace project (pictured in a file photo) in Cotai was also expected to open its remaining facilities later this year, helping to increase the firm’s earnings, according to Moody’s.
Despite the expected gaming market recovery, the ratings agency said it forecast SJM Holdings’ leverage would “remain very high at around 7.3 times until 2024”. That, Moody’s said, was due to SJM Holdings’ “large adjusted debt increase during the pandemic to HKD32 billion as of the end of 2022, from HKD16 billion as of the end of 2019”.
The ratings agency labelled the casino operator’s liquidity as “very good”: it was sufficient to cover the firm’s cash needs “for at least the next 12 months, including construction and other payables due during this period”.
Moody’s said im its Monday note it was affirming its ‘Ba3’ corporate family rating for SJM Holdings, and ‘B1′ rating on the backed senior unsecured bonds issued by subsidiary Champion Path Holdings Ltd and guaranteed by SJM Holdings. The rating outlook remained negative, it added.
“It will take time to repair SJM Holdings’ capital structure, which weakened materially during the pandemic,” said Gloria Tsuen, a Moody’s vice president and senior credit officer, quoted in the note. “This consideration drives the negative outlook,” added Ms Tsuen.
In a separate note also issued on Monday. Moody’s affirmed the ratings of several firms linked to another Macau-based operator, Melco Resorts and Entertainment Ltd, namely Melco Resorts Finance Ltd (‘Ba3’) and Studio City Finance Ltd (‘B1’). It affirmed the ‘Ba3’ rating on the U.S. dollar senior secured bonds issued by Studio City Company Ltd, also connected to Melco Resorts.
The rating outlook for the three firms remained negative, stated the ratings agency.
“The rating affirmation reflects our expectation that Melco group’s financial leverage will improve significantly over the next two to three years, as Macao’s gaming market will recover strongly after China recently lifted its pandemic-related travel restrictions,” said Moody’s Ms Tsuen.
