GGRAsia – SJM 2022 impairment little impact on cash flow: brokerage

SJM 2022 impairment little impact on cash flow: brokerage

Mar 07, 2023 Newsdesk Latest News, Macau, Top of the deck

The announcement by Macau casino operator SJM Holdings Ltd of an impairment charge of nearly HKD1.21 billion (US$153.5 million) for full-year 2022 had “little-to-zero impact” on the company’s cash flow, says brokerage JP Morgan Securities (Asia Pacific) Ltd.

On Monday, SJM Holdings said it expected to record a loss attributable to its owners of about HKD7.80 billion for 2022, including an impairment charge related to a “reassessment and rationalisation” of the group’s “core” casino business.

The impairment charge included: the “cost of refurbishments” made to the Jai Alai building “over a number of years”, so that the complex “could be operated as a casino”; and a HKD4.7 million charge “relating to the closure of five third-party owned casinos and two self-promoted casinos”.

In a Tuesday memo, JP Morgan said the impairment charge would not have much impact on the institution’s forward estimates for the casino group.

“First, this is a purely non-cash charge that was booked in full-year 2022. Second, we already knew of five satellite casinos since last December, so no incremental impact here. Third, Jai Alai was a very small casino with 20-odd tables and it hardly made any profits for SJM – even pre-Covid – due to its rent payment,” wrote analysts DS Kim and Mufan Shi.

They added: “As such, we do not think it will result in a negative impact on SJM’s cash flows/EBITDA [earnings before interest, taxation, depreciation and amortisation].”

Macau has 11 satellite casinos that have continued to operate under the new 10-year gaming concession arrangement that started on January 1. There had been 18 satellite casinos in the market as of June-end 2022, so venue-wise the sector has shrunk by circa 40 percent. Nine of the 11 continuing satellite casinos rely on SJM Holdings for gaming.

The SJM group operated 19 casinos during the past concession term, with 14 satellite and five self-operated venues.

According to JP Morgan, the group’s Grand Lisboa complex (pictured) generated “about 55 to 60 percent”of pre-Covid group-wide EBITDA, “followed by other self-run casinos (20 to 30 percent) and satellite casinos (10 to 20 percent)”.

The institution added: “Post-Covid, the contributions from the satellite and other self-run casinos should be much smaller as the flagship casino – Grand Lisboa Palace – is now in operation.”

The HKD39-billion Grand Lisboa Place, SJM Holdings’ foray into Macau’s Cotai market, was launched in July 2021. The company brought to market earlier this year additional rooms at the complex, coinciding with the easing of Covid-relates restrictions in Macau, mainland China and Hong Kong.