GGRAsia – SJM stable outlook backed by easing leverage: Moody’s

SJM stable outlook backed by easing leverage: Moody’s

Sep 05, 2024 Newsdesk Latest News, Macau, Top of the deck

SJM Holdings Ltd’s ongoing debt-reduction effort and the expected contribution from the ramping up of its business at the Grand Lisboa Palace casino resort (pictured) in Cotai, supports a ‘Ba3′ corporate family rating and ‘stable’ outlook for the Macau gaming concessionaire, said Moody’s Investors Service Inc.

But the ratings agency observed it did not expect SJM Holdings to declare significant dividends “at least over the next one to two years”, given its debt-reduction drive.

“Since 2023, as a result of the increase in earnings and operating cash flow, as well as the completion of its major capital spending projects, SJM is generating free cash flow again, which is being used to reduce its debt,” said Moody’s in a Wednesday update.

The ratings house added: “Given this development and the increase in earnings, we expect SJM’s adjusted debt to EBITDA [earnings before interest, taxation, depreciation and amortisation] ratio to decline to 7.3x in 2024 and further to 5.3x by 2025 from around 8.7x in the 12 months to June 2024.”

Moody’s further noted: “The projected ratio for 2025 supports SJM’s Ba3 ratings.”

SJM Holdings’ first-half adjusted EBITDA jumped by 275.9 percent year-on-year to just over HKD1.73 billion (US$221.9 million). The company saw its first-half loss narrowed to HKD162.4 million, from HKD1.26 billion a year earlier.

Moody’s stated: “We expect the company’s adjusted EBITDA to improve further to around HKD3.8 billion in 2024 and HKD4.7 billion in 2025, from HKD2.0 billion in 2023. The gradual ramp up of Grand Lisboa Palace will also contribute to earnings growth.”

Grand Lisboa Palace’s interim adjusted property EBITDA was HKD192 million, as compared with a negative HKD292 million in the first half of 2023. The company has said in commentary it is pivoting operations at the Cotai casino resort to cater to mass-market patrons.

“The expected ramp-up of Grand Lisboa Palace, which opened in July 2021, will help SJM gain market share by building a significant presence in Cotai. It will also help improve SJM’s overall profitability by increasing the high-margin mass-market business and optimising the company’s workforce,” the ratings agency remarked.

Moody’s also said SJM Holdings’ adjusted debt – including lease liabilities – might gradually decline to about HKD27.6 billion by the end of 2024 and HKD25.1 billion by 2025-end. These projections, if realised, would still remain “substantially above” the company’s adjusted debt of HKD16.0 billion as of the end of 2019, the year before the Covid-19 pandemic.

SJM Holdings saw its adjusted-debt level peak at the end of 2022, at HKD33.0 billion, amid the pandemic-related impact on Macau tourism, the ratings agency noted.

“SJM maintained a conservative financial policy before the pandemic, and we believe it will focus on reducing its leverage to a moderate level as its cash flow normalises,” the ratings agency said.

It also stated: “We do not expect SJM to declare significant dividends at least over the next one to two years, given its intention to reduce debt.”