Macau casino operator SJM Holdings Ltd might start generating “slight positive” cash flow in the current financial year, says Singapore-based Lucror Analytics.
Credit analyst Leonard Law stated: “Our fundamental credit bias on SJM [Holdings] is ‘stable’. We expect the company to generate slight positive free cash flow in 2024, which would facilitate gradual net debt reduction.”
As of March-end, SJM had nearly HKD28.49 billion (US$3.64 billion) in debt, according to its first-quarter unaudited results highlights. Of the company’s syndicated bank facilities – consisting of a circa HKD9-billion term loan and a circa HKD10-billion revolving credit facility – with HKD2.7 billion undrawn as of March end.
Lucror said factors supporting SJM Holdings’ move toward positive cash flow included that a recently-announced strategic acquisition of a number of assets from its parent company, the privately-held Sociedade de Turismo e Diversões de Macau SA (STDM), involved minimal outlay relative to SJM’s HKD4.95 billion cash balance as of March-end.
The casino company had said the STDM assets acquired – including a building in downtown Macau to be turned into a food centre for tourists, and STDM-controlled companies involved in planned food and drink operations for its Cotai flagship resort Grand Lisboa Palace (pictured) – would help SJM Holdings build its business with mass-market tourists.
Lucror said SJM Holdings’ unrestricted cash and undrawn credit facilities would be “sufficient” to meet all its debt obligations up to at least financial year 2026.
Nonetheless, the casino operator faced “limited” near-term financing risks, Lucror also noted.
Mr Law also observed, referring to some legacy matters relating to SJM Holdings’ obligations to staff of former satellite casinos that had relied on its Macau gaming rights: “The company’s profitability should lag that of peers for the next one to two years. This is because it is unlikely that the costs associated with having excess gaming staff on the payroll will be fully resolved until 2025, while the ramp-up of Grand Lisboa Palace remains tepid”
The analyst added: “This means that SJM’s pace of deleveraging may remain slower than peers.”
