Macau casino operator SJM Holdings Ltd is expected to be running its Grand Lisboa Palace (GLP) resort, in the city’s Cotai district, “under full capacity of 1,892 rooms by year end,” states a Tuesday note from BofA Securities, citing comments from the firm’s management.
SJM has fully opened two hotels at Grand Lisboa Palace, and a third one – Palazzo Versace Macau – had a soft opening in late April. “Yet, occupancy is capped at 70 percent currently due to insufficient labour,” wrote BofA Securities’ analysts Ronald Leung, Candice Zhang, and Yoyo Pang.
On Monday, SJM Holdings reported first-quarter 2023 adjusted earnings before interest, taxation, depreciation, and amortisation (EBITDA) of HKD31 million (US$4.0 million), compared with a negative figure of HKD474 million in the same period a year earlier.
Grand Lisboa Palace adjusted property EBITDA was negative by HKD230 million in the first quarter this year, compared to negative HKD216 million a year earlier.
According to BofA Securities, SJM Holdings’ management “expects Grand Lisboa Palace to achieve EBITDA breakeven in third quarter if it achieves market share of 2.5 percent”.
Daily operational costs at the Cotai complex were HKD5.1 million in the opening quarter of 2023 and are “expected to increase to HKD7 million to HKD8 million when fully ramped up with headcount increasing to 5,000 from 3,400 currently,” said the institution’s analysts following the investment call with SJM Holdings’ executives.
Despite returning to positive adjusted EBITDA, SJM Holdings’ quarterly performance still lagged its industry peers with a “meagre” recovery to pre-Covid-19 levels, suggested JP Morgan Securities (Asia Pacific) Ltd in a Monday memo. The group’s positive EBITDA figure represented only a “3 percent” recovery to the first quarter of 2019, while other Macau market rivals recorded a “circa 50 percent” recovery on average, wrote analysts DS Kim and Mufan Shi.
They added: “Granted, its EBITDA would’ve been much higher if they held well (note its luck/hold was bad for both VIP and mass in first quarter), and its ‘same-store’ EBITDA was much stronger (if we exclude losses from Grand Lisboa Palace and excess staff from five shut-down satellites).”
The Cotai property is yet to “achieve a critical mass of patrons to generate sizeable profits”, given its “poor location” and “lack of destination appeal”, stated JP Morgan.
“Plus, the demise of junkets means that everyone will need to build up their own high-end business, namely premium mass and direct VIP, which may not be easy for SJM as one may think, given its lack of experience or database in this area,” it added.
Nonetheless, the casino operator’s “significant cost saving efforts” made during the Covid-19 pandemic was “a key positive”.
“We believe SJM’s all-in operating expenses for self-run casinos by 2024 will be only 5 percent to 10 percent above pre-Covid levels despite significant additional capacity from its flagship (and by far the largest) property Grand Lisboa Palace, thanks to significant cost saving efforts during the pandemic,” suggested the brokerage’s memo.
