The earnings potential of Macau casino resort Grand Lisboa Palace (pictured), promoted by Hong Kong-listed SJM Holdings Ltd, is “underappreciated by the market,” says a recent research note by UBS Securities Asia Ltd.
“We expect SJM to unlock value through the ramp-up of Grand Lisboa Palace, as well as [achieving] balance sheet deleveraging and improving business mix toward Cotai over the next six to 18 months,” said the institution.
UBS observed that SJM Holdings was “among the most highly geared operators in Macau,” due to Grand Lisboa Palace’s HKD39.0 billion (US$5.0 billion) capital cost “and cash burn” through the Covid-19 pandemic period.
But it stated: “We expect net debt to decline from the current US$3.0 billion to US$2.1 billion by end-2024 as Grand Lisboa Palace delivers EBITDA [earnings before interest, taxation, depreciation and amortisation] and cash flow.”
The banking group said this could reduce the net-debt-to-EBITDA ratio “to a more comfortable level” of 2.6 times by the end of 2024, versus the expected 9.1 times at the end of this year.
UBS said that based on “peer property productivity analysis” and its 2024 estimates for Macau market-wide mass gross gaming revenue assumption – at 105 percent of 2019 levels – it expects Grand Lisboa Palace, based in Cotai, to deliver 2024 EBITDA of US$438 million.
“This implies US$630 per room a day, in line with properties at similar scale and below the Cotai average of US$900 in 2019,” noted the institution.
Daisy Ho Chiu Fung, chairman of SJM Holdings, said in May after the group’s first-quarter selected results, that the numbers were “very encouraging”, as the group’s EBITDA turned positive.
