GGRAsia – SJM less bullish on Cotai scheme 2020 launch: analysts

SJM less bullish on Cotai scheme 2020 launch: analysts

Mar 17, 2020 Newsdesk Latest News, Macau, Top of the deck

Management at gaming operator SJM Holdings Ltd seems to have less confidence than previously – “understandably so” – that it can open its new Grand Lisboa Palace casino resort (pictured) on Cotai by the end of this year, said brokerage JP Morgan Securities (Asia Pacific) Ltd.

Citing a conference call with management following the casino group’s full-year earnings announcement on Monday, the institution stated: “Grand Lisboa Palace is not (yet) delayed.”

The property has a capital budget of HKD39 billion (US$5 billion), including opening costs.

Analysts DS Kim, Derek Choi and Jeremy An added: “SJM [Holdings] has not changed [the] official target opening of end- 2020, as construction has already been completed and opening date will be dictated by the progress of government approvals (which is unpredictable).”

But they added: “The management’s level of conviction on this timeline seems lower than a quarter ago (understandably so), and we keep first-quarter 2021 opening in our model (which we think is a consensus view by now).”

JP Morgan noted that – in relation to company commentary also mentioned in the 2019 results that construction of Grand Lisboa Palace had been completed in the fourth quarter – “SJM has spent HKD32 billion by end-2019, out of HKD39 billion total budget (including capital expenditure, pre-opening, etc).”

The brokerage added the casino company remained in a “net cash position” as of the end of the 2019, with HKD200 million, down from HKD500 million it held in the third quarter.

Another brokerage, Sanford C. Bernstein Ltd, observed that while Grand Lisboa Palace was still projected to open by year-end 2020 “according to management” the schedule was “as always” – in the context of large-scale Macau casino projects – “largely dependent on government inspections”.

The institution’s analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu noted – in apparent reference to investment-sector interest in how Macau casino firms are managing the servicing of their debt in the current market downturn – that SJM Holdings was “currently compliant with its debt covenants”.

The institution said the casino firm had “leverage covenant of five times for 2020 and four times 2021 and interest coverage covenant is three times”.

Sanford Bernstein added: “SJM [Holdings] has approximately HKD15 billion debt outstanding and we estimate its leverage ratio is approximately 3.6 times and interest coverage ratio is approximately 9.5 times.”

In late February, GGRAsia reported that Macau casino operator MGM China Holdings Ltd had asked lenders to ease financial covenants related to a HKD9.75-billion (US$1.25 billion) credit facility, amid the negative impact that a novel coronavirus has had on the city’s gaming industry.

On March 12 Bloomberg News reported – citing people familiar with the matter – that Wynn Resorts Ltd was planning to draw down a portion of a US$850-million revolving credit line, amid concerns related with the new coronavirus. Wynn Resorts - the parent of Macau operator Wynn Macau Ltd - declined to comment when approached by GGRAsia.