GGRAsia – SJM staff cost risk on exposure to satellites: analysts

SJM staff cost risk on exposure to satellites: analysts

Jun 17, 2022 Newsdesk Latest News, Macau, Top of the deck

Macau casino operator SJM Holdings Ltd is likely to face an increase in its staff costs due to the satellite casino issue, and could face further such liabilities if third-party promoters of such properties decide either to cease casino operations, or if SJM Holdings runs them directly, say a number of analysts.

Fitch Ratings Inc said in a Thursday note on SJM Holdings that its staff costs liability for satellites – a total of 14 such venues run under the company’s gaming licence – could be as much as HKD600 million (US$76.4 million).

Referring to the general trading outlook in Macau, Fitch analysts Samuel Hui, Wendi Wu and Britton Costa wrote: “The challenging operating environment may also encourage more satellite casino owners to cease operation when their contracts expire this month. We estimate staff costs could increase by up to HKD600 million in second half 2022, as SJM Holdings brings gaming staff onto its payroll.”

Brokerage JP Morgan Securities (Asia Pacific) Ltd said in a May 4 note that SJM Holdings’ 14 satellite casinos employed around 6,900 staff, “accounting for about one-third” of the group’s total staff count.

“This could lead to an additional operating expenses burden for SJM in second-half 2022, as it may need to convert some staff – i.e., the staff from satellite casinos that decide to cease gaming operations – onto its direct payroll,” added the instution.

Lei Wai Nong, Macau’s Secretary for Economy and Finance, confirmed in comments at the end of May, that should satellite casinos stop operations, then the licence holder would need to absorb the gaming staff there, into its directly-managed workforce.

If a concession partner takes over directly – as was announced this week by Emperor Entertainment Hotel Ltd, the promoter of the Grand Emperor Hotel and its casino, run under an SJM Holdings licence – then the concessionaire will still face higher staff costs.

Macau satellites are typically hotels with a casino, that promote gaming under a so-called service agreement with one of the city’s gaming concessionaires.

As Macau prepares for a new public tender for 10-year-long gaming rights, coinciding with the expiry this year of the current circa 20-year permits, the city’s government has been planning a shakeup of industry regulation. A portion of it deals with the status of satellites, with some industry commentators saying the proposed new rules are likely to make it harder for them to have a successful business model.

The Macau government has said that if satellites choose to cease gaming, it will be a business decision, not because of rule changes.

Macau Legend Development Ltd, Paradise Entertainment Ltd, and Success Universe Ltd – three Hong Kong-listed firms that between them promote five satellite casinos under the SJM Holdings licence – have respectively made public statements that they wish to retain casino operations at their properties.

In the case of the latter two, in April comments, they mentioned at least until December 31, with subsequently Success Universe – which promotes the Ponte 16 resort near Inner Harbour district – saying it wanted to go on past 2022. Earlier this month, a senior executive at Macau Legend mentioned doing gaming until at least December 31 this year.