Brokerage Sanford C. Bernstein Ltd says it would “not be shocked” were the opening of Macau casino resort Grand Lisboa Palace (pictured) to be pushed back, within the framework of the second-half 2020 guidance recently said to have been offered to the market by its promoter, SJM Holdings Ltd.
The institution also said it were possible the project budget might rise again. In late July it was flagged by SJM Holdings as being HKD39 billion (US$5 billion) – an increase of 8 percent on the figure previously mentioned by the company.
“We would not be shocked if delays get extended further and the final budget goes higher,” stated the brokerage’s analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu in a Thursday note.
“Management has now guided to a second-half opening, which is reasonable, but likely not before October  in our view,” suggested the institution.
SJM Holdings’ existing Macau casino licence will expire in June 2022.
Sanford Bernstein said that the valuation of SJM Holdings’ stock was now “too low to remain bearish”, but that a “lack of catalysts limit bullishness”.
The institution stated that as of September 9, SJM Holdings’ shares, listed on the Hong Kong Stock Exchange, had been valued at HKD7.77 per unit, a decline of 37 percent from a recent peak of HKD10.62 on May 2.
The brokerage said the “current valuation in the Macau gaming sector” as a whole was “attractive’ and the sell-off had been “overdone”.
But it added regarding SJM Holdings: “We see no material catalysts that could lead to an upward rerating or improved fundamentals in the medium term to warrant a more bullish view. We update our model to reflect current trends and a delay in the opening of [the] Cotai [property] to the fourth quarter 2020.”
Sanford Bernstein forecast a 13 percent compound annual growth in SJM Holdings’ earnings before interest, taxation, depreciation and amortisation (EBITDA) for the period 2018 to 2023 inclusive, with “most of the growth” to be attributable to Grand Lisboa Palace, although it expected some “cannibalisation” of business from the group’s other venues.
The analysts noted, referring to a property of MGM China Holdings Ltd that opened in February 2018: “… we have seen from the slower-than-anticipated ramp up of MGM Cotai, a new property on Cotai is not an easy endeavour.”
They added, making reference to a segment of high value mass-market players betting in high multiples: “The key is premium mass, something SJM has not been able to execute on in the past and will face a steep curve with the Cotai property.”
“In the initial years of the Grand Lisboa Palace opening, while EBITDA is set to improve, net income improvement will be more muted as the company begins to depreciate the HKD39 billion asset… fully booking interest expense (that has been partly capitalised during the construction period),” wrote the analysts.
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Paulo Martins Chan
Director of Macau's Gaming Inspection and Coordination Bureau