Macau casino operator SJM Holdings Ltd’s plan to convert a commercial property in Hengqin into a hotel could help address the issue of the company’s “undersupplied” inventory in the Macau market, suggested Morgan Stanley Asia Ltd in a Wednesday memo.
Though it might be a “strategic” move, it will have “limited impact in near term,” and will make the casino firm’s gearing “higher”, wrote analysts Praveen Choudhary and Gareth Leung.
“The government recently announced multiple entry visas for residents of Hengqin to come to Macau. This makes it easier to have a hotel in Hengqin and shuttle them to Macau casinos,” said the Morgan Stanley team.
That was a reference to the announcement of new measures by China’s State Council that further ease Macau-bound travel rules for residents of neighbouring mainland-China city Zhuhai, as well as for mainlanders resident on Hengqin island (pictured) next door to Macau.
Starting from January 1, 2025, mainland China residents possessing household registration and a residence permit for Hengqin can apply for a multiple-entry visa to travel to Macau. No limit is placed on the number of trips, but the maximum period of stay each trip, will be seven days.
In a separate note, Morgan Stanley said it viewed the visa easing as “mildly positive” for the Macau gaming sector, with the policy likely to “help sentiment on the sector”.
In a Wednesday filing, Hong Kong-listed SJM Holdings said it plans to acquire for CNY546 million (US$75.2 million) office and retail space in Hengqin, for conversion into a three-star hotel that leveraged the “prestigious Lisboa brand”. The property, which is described by the company as next to the Hengqin Port, is to be acquired from Shun Tak Holdings Ltd.
The Morgan Stanley analysts said in their Wednesday memo: “The company plans to convert the space into a three-star hotel. We estimate 300 keys of 500 square feet [46.5 square metres] each, implying HKD2 million [US$257,199] per key. But it will not be ready for another 18 months.”
They added: “This is in line with government initiative and provides SJM with room inventory in Macau, which is undersupplied in this regard. It also helps Hengqin, which has overcapacity of office buildings.”
The Hengqin deal will in likelihood make SJM Holdings’ gearing higher, the analysts observed. SJM Holdings’ net debt, as of September, stood at HKD23 billion, or approximately seven times its last twelve-month earnings before interest, taxation, depreciation and amortisation (EBITDA), according to the investment bank.
