Macau casino operator SJM Holdings Ltd’s “deleveraging trajectory” shows a pace “slower than those of its peers” in the Macau market, suggests Singapore-based Lucror Analytics.
“SJM’s earnings have been weighed down by excess staff costs (from the closure of five satellite casinos in December 2022), as well as a slow ramp-up” at the firm’s Grand Lisboa Palace casino resort (pictured), wrote Lucror’s credit analyst Leonard Law, in a report carried on the Smartkarma platform.
“Our fundamental credit bias on SJM is ‘negative’,” stated the analyst.
Last week, Fitch Ratings Inc said it had revised the outlook on SJM Holdings’ long-term foreign-currency issuer default rating to “stable” from “negative”, and affirmed the firm’s rating at ‘BB-’.
The institution said the stable outlook reflected “the robust recovery” in the number of visitor arrivals and volume of gaming revenue in Macau.
The ratings agency forecast SJM Holdings’ earnings before interest, taxation, depreciation and amortisation (EBITDA) to reach HKD3.6 billion (US$461.1 million) this year, up from an estimated HKD1.7 billion in 2023.
According to Lucror, SJM Holdings, unlike its peers, “has not yet started reducing net debt, as free cash flow generation in the third quarter and [the first] nine months of 2023 were neutral after interest payments and capex.”
It added: “The company’s liquidity is weaker than that of peers, albeit it does not have major debt maturities until financial year 2026.”
SJM Holdings’ notes are “yielding above” most of those of its peers, noted Lucror.
“This reflects SJM’s weaker business profile and liquidity relative to peers, making the company more vulnerable in the event of another industry downturn,” stated Mr Law.
