Moody’s Investors Service Inc says it expects earnings for Macau casino operator SJM Holdings Ltd to “improve over the next two to three years,” based on “the expected [Macau] market recovery and Grand Lisboa Palace’s ramp-up.”
Such recovery will in turn “drive an improvement” in SJM Holdings’ adjusted debt to earnings before interest, taxation, depreciation, and amortisation (EBITDA) “to about 8.5 times in 2022 and 3.2 times in 2023 from the negative level in 2021,” said the ratings agency in a Wednesday report.
Moody’s said in a separate Monday note it had placed on review for downgrade SJM Holdings’ ‘Ba1’ corporate family rating, mainly reflecting the casino firm’s “delay in refinancing its existing bank loans, which will mature at the end of February 2022.”
SJM Holdings opened its HKD39-billion (US$5-billion) Grand Lisboa Palace casino resort on Cotai on July 30, against the backdrop of the ongoing pandemic.
In Wednesday’s report, Moody’s said it expected SJM Holdings’ debt to grow over the next 12 to 18 months to about HKD24 billion, “mainly as the company funds its negative operating cash flow with revolver debt.” Such debt will likely be reduced in 2023, “based on improved earnings and cash flow.”
The institution stated: “The expected ramp-up of Grand Lisboa Palace since its opening in July 2021 will allow SJM Holdings to gain market share by building a significant presence in Cotai.”
The institution said additionally that operations of the Cotai property should be “helped by an expected recovery in the broader gaming market and the property’s large non-gaming amenities.” It added: “Such strong non-gaming amenities, and the property’s luxury positioning, should increase SJM Holdings’ appeal among premium-mass patrons.”
Moody’s forecasts Grand Lisboa Palace’s gross gaming revenue to reach about HKD16 billion, and property EBITDA to reach between HKD2.5 billion and HKD3.0 billion in 2023, likely “accounting for around 40 percent to 50 percent of the group’s total EBITDA in 2023.”
According to the rating agency, SJM Holdings’ aggregate adjusted EBITDA “will be negative in 2021,”before growing to “around HKD2.8 billion in 2022 and further to HKD6.4 billion in 2023. Such forecast is based on Moody’s assumptions that Macau’s mass-market gaming revenue will be about 40 percent, 60 percent and 90 percent to 100 percent of the 2019, pre-pandemic levels in 2021, 2022 and 2023, respectively.
The institution stated: “We expect the pace of recovery, at least during 2022, to be gradual and bumpy, given the likely pattern of travel resumptions and temporary suspensions, mainland China’s control over visa issuances, and the uncertain lifting of the quarantine requirements for travellers from Hong Kong.
It added: “We also do not expect the city’s VIP gaming revenue to fully recover even in 2023, given the regulatory scrutiny over the segment and the weakened junket sector.”
