JP Morgan Securities (Asia Pacific) Ltd says the liquidity of Macau-based casino operator SJM Holdings Ltd is “somewhat worrying”. The brokerage stated in a report issued on Saturday that SJM Holdings’ liquidity was “by far the shortest” among the six casino operators in Macau.
“From a financial standpoint, our analysis suggests SJM Holdings has only about six months of liquidity runway, which is by far the shortest (versus 1.5 years to 30-plus years for peers) and makes us uncomfortable,” wrote analysts DS Kim, Amanda Cheng and Livy Lyu.
The JP Morgan team noted that SJM Holdings’ loan re-financing effort had “stalled pending government approval”. The brokerage said likely the gaming operator would “have to seek external funding,” either via debt or equity.
“Plus, note SJM Holdings’ operating expense is likely to rise from the second half of 2022 amid the likely closure of some satellite casinos, as we believe SJM Holdings will have to bring their gaming staffs on its own payroll; this would shorten its liquidity runway even further,” added the institution.
Macau satellites are venues controlled by independent investors but must piggyback on the gaming licence of an existing casino concessionaire. Presently, there are 18 operating satellite casinos in the city, with 14 of them currently tied to the gaming rights of SJM Holdings.
An amendment bill relating to the city’s existing gaming law is currently being analysed by one of the committees of the city’s Legislative Assembly. The new framework states that satellite venues will be given a three-year grace period to tie the ownership of their gaming premises to a local concessionaire.
One satellite venue linked to SJM Holdings – the gaming operation at the Grand Emperor Hotel in downtown Macau – is to end casino business on June 26, said the hotel’s promoter Emperor Entertainment Hotel Ltd, in an April 1 filing in Hong Kong.
Late last month, Chinese-language media outlet Macao Daily News reported, citing sources it did not identify, that at least seven Macau satellite casinos – nearly 40 percent of such properties currently active in the local market – might withdraw from the sector by mid-year.
In its Saturday note, JP Morgan also discussed business performance at SJM Holdings’ Grand Lisboa Palace casino resort (pictured) in Cotai. “[The property] may take a long while to ramp up and achieve a critical mass of patrons for breakeven,” the brokerage said.
JP Morgan said it expected aggregate first-quarter earnings before interest, taxation, depreciation and amortisation (EBITDA) for the six casino operators in Macau to decline by more than 50 percent compared to the previous quarter. That would be “the worst level since Macau’s border re-opening six quarters ago,” it added.
The brokerage said it expected Galaxy Entertainment Group Ltd, Melco Resorts and Entertainment Ltd and Sands China Ltd to achieve a positive performance, while SJM Holdings, MGM China Holdings Ltd and Wynn Macau Ltd would “likely incur losses”.
