GGRAsia – SJM excess labour costs down 12pct q-o-q: brokerage

SJM excess labour costs down 12pct q-o-q: brokerage

Nov 16, 2023 Newsdesk Latest News, Macau, Top of the deck

Brokerage China International Capital Corporation (CICC) Hong Kong Securities Ltd says the cost of excess headcount at Macau casino operator SJM Holdings Ltd has declined by 12.4 percent quarter-on-quarter, through “natural attrition”. Such redundant payroll stood at HKD148 million (US$19.0 million) in the third quarter, down from HKD169 million in the previous quarter, stated the institution, citing SJM Holdings’ management during a conference call on the third-quarter results.

The casino firm has been trying to rationalise the excess staff from five satellite casinos that ceased operation last year, several gaming sector analysts had highlighted in previous commentary. Some analysts had observed that the pace of rationalisation of excess staff had been “much slower” than the investment community expected.

SJM Holdings’ management said it expected to “fully digest by 2025″ the “excess” headcount cost, through redeployment of those employees to other posts on further ramp up of the Grand Lisboa Palace resort in Cotai, as well as “natural attrition”, said the brokerage in a Wednesday memo.

The casino operator reported third-quarter adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) at HKD566 million, compared with a negative figure of HKD968 million a year earlier.

“We attribute SJM Holdings’ performance to a continued EBITDA loss at Grand Lisboa Palace and satellite gaming properties but balanced by gradual on-track recovery of Grand Lisboa and other self-promoted gaming properties,” wrote CICC analysts Shengyong Goh, Jiayu Wang and Liwei Hou in Wednesday’s memo.

SJM Holdings’s gaming licence is currently used by nine satellite casinos: they are the Macau peninsula casinos at L’Arc Hotel Macau, Casino Landmark, Casino Casa Real, Casino Kam Pek Paradise, Casino Fortuna, Casino Emperor Palace, Casino Ponte 16, Casino Legend Palace; and Casino Grandview in Taipa.

The CICC team however highlighted that Grand Lisboa Palace’s EBITDA broke even in October, and the casino firm’s management targets the Cotai property to achieve a “4 percent to 5 percent market share by 2025”. It said the casino operator’s gross gaming revenue (GGR) for October grew by 27 percent month-on-month, according to the firm’s management.

Given the pace of EBITDA recovery at Grand Lisboa Palace, CICC said it had lowered its 2023 EBITDA estimate for SJM Holdings by 23 percent, to just below HKD1.80 billion; it also lowered its 2024 EBITDA estimate for the company by 2 percent, to HKD4.12 billion.

Another brokerage, CBRE Securities LLC, said in a Wednesday note that SJM Holdings’ third-quarter adjusted EBITDA had missed the institution’s forecast of HKD603 million.

“The miss relative to our model came mostly at Grand Lisboa Palace, where we had modelled an inflection to positive EBITDA, and at the satellite casinos where excess costs of HKD148-million related to five discontinued casinos (mostly labour) continues to weigh on margins,” wrote CBRE analysts John DeCree and Max Marsh.

The CBRE team added: “Satellite casinos [using SJM Holdings’ gaming rights] have a longer road to recovery with excess costs and labour related to five shuttered casinos. The segment lost HKD80 million of adjusted EBITDA due to an estimated HKD148 million of excess costs. Excluding these costs, EBITDA would have been HKD68 million.”