The ramp up of business at the Grand Lisboa Palace resort in Cotai, run by Macau concessionaire SJM Holdings Ltd, has been slower than expected by investment analysts, but should continue as the company makes “targeted investments” to improve operations at the complex, say two separate brokerages.
CBRE Capital Advisors Inc suggested in a Wednesday memo that any closure of a satellite casino in Macau operated under SJM Holdings could eventually contribute to lift business volumes at Grand Lisboa Palace (pictured).
Satellite casinos operate under the gaming licence of a Macau concessionaire, but are usually promoted by third parties.
Under a new gaming regulatory framework – coinciding with the current 10-year concessions of the six Macau operators – third-party investors in satellite casinos will only be permitted to earn a “management fee” via a ‘management company’ from 2026.
Macau has 11 satellite casinos that continued to operate under the new 10-year gaming concessions that started in January 2023. Nine of the 11 satellite casinos are under SJM Holdings’ licence, one is under Galaxy Entertainment Group Ltd’s permit, and one is under Melco Resorts & Entertainment Ltd’s gaming rights.
Macau’s Chief Executive, Sam Hou Fai, said last week that the local government expects the city’s gaming operators to coordinate adequately with their partners at local satellite casinos regarding the future of such venues after the end of the year.
In Wednesday’s report, CBRE analysts John DeCree and Max Marsh said: “The three-year transition period for satellite casinos is concluding at the end of 2025. It remains unclear what the economics of the new operating/management structure could look like, and if the satellite casinos will continue to be financially viable going forward.”
They added: “Any closures could open the door for SJM to reallocate some of that table capacity – and potentially customers – to Grand Lisboa Palace.”
According to the analysts, if the Cotai complex “is successful in drawing more foot traffic, the incremental table capacity could help grow its mass market business.”
Return on investment remains ‘low’
In a Tuesday memo, Seaport Research Partners observed that “excess costs” at the satellite businesses under SJM Holdings’ licence “continue to come down slowly” and earnings before interest, taxation, depreciation, and amortisation (EBITDA) profitability in the satellite business “should continue to rise over the next few quarters”.
In fourth-quarter 2024, satellites represented less than 4 percent of SJM Holdings’ EBITDA for the period, noted analyst Vitaly Umansky.
SJM Holdings reported on Tuesday that it was back in the black for full-year 2024.
In its memo, Seaport also said the future of satellites beyond 2025 “remains uncertain and there has been no clarity from either the government or from SJM on what the outcome may be”.
“Grand Lisboa Palace’s slow pace of ramp up remains a concern,” stated Mr Umansky.
He added: “While Grand Lisboa Palace will continue to ramp, the return on the investment remains abysmally low and unlikely to achieve anything approaching positive value creation – versus cost of investment – in the foreseeable future, if at all.”
According to Mr Umansky, the strategy around the Cotai casino resort “is still being worked on, with the company hiring additional sales and marketing staff over the last few quarters”.
He added: “We expect the build out of marketing and service capability for premium mass to continue to take time.”
On Tuesday, SJM Holdings said it would expand Grand Lisboa Palace’s overall event-hosting capacity “by 132 percent” by adding ‘Garden House’, a 2,000-square-metre (21,528-sq-foot) “flexible indoor-outdoor venue”, and ‘Grand Hall’, a 2,900-sq-metre venue that will be “outfitted with state-of-the-art audio-visual and conference facilities”.
The casino firm also said it would increase by over 10 percent its room inventory at Grand Lisboa, the group’s downtown-Macau casino hotel.
CBRE said the “targeted investments” at both properties were “aimed at driving incremental foot traffic and bolstering its mass-market segments”.
“Projects at both properties will be carefully timed to ensure minimal disruption,” said the CBRE analysts, adding that smart gaming tables had already been “fully installed at Grand Lisboa in January and are beginning to roll out at Grand Lisboa Palace”.
