SJM upbeat on 4Q despite 3Q miss on analyst estimates
Management at Macau casino operator SJM Holdings Ltd has been “upbeat” about its October gaming business performance trends and the implications for the rest of the fourth quarter, despite the firm missing estimates of some analysts regarding its third-quarter results, issued in unaudited highlight form on Tuesday.
So said a note that day from JP Morgan Securities (Asia Pacific) Ltd. In the three months to September 30, SJM Holdings achieved a 4.5 percent increase in profit, despite a 3.2-percent decline in net gaming revenue, mainly driven by weakness in VIP play.
“Even if we exclude luck factors, its [SJM Holdings’] October seems to be tracking meaningfully better than the third quarter, good enough to offset any negative implications from the somewhat disappointing third-quarter print,” wrote analysts DS Kim, Jeremy An and Derek Choi, referring first to the performance of the house versus the players.
The JP Morgan team added, referring initially to the casino operator’s current Macau flagship Grand Lisboa, located on the city’s peninsula; and second to an autumn Chinese holiday period encompassing National Day on October 1: “Management noted a very strong and ‘lucky’ start of the month during the seven-day Golden Week, where Grand Lisboa’s mass gross gaming revenue [GGR] grew 19 percent year-on-year and VIP GGR 53 percent year-on-year…”
The analysts further noted: “Demand seems to stay solid post Golden Week as well, with Grand Lisboa’s mass GGR up 17 percent year-on-year for the first 28 days of October.”
The institution suggested however that “high luck” was likely to have been a key factor for VIP GGR in autumn Golden Week, as the brokerage estimated VIP rolling chip volumes – another measure of business performance – actually fell 25 percent to 30 percent year-on-year.
Brokerage Sanford C. Bernstein Ltd said in a Tuesday note following SJM Holdings’ third-quarter highlights, that – as well as the year-on-year improvements in VIP and mass GGR at Grand Lisboa in autumn Golden Week – the casino group had also reported visits to its properties during that holiday as being up 3.5 percent year-on-year, to 47,000 per day. Up to the date of the note, the casino firm had reported visitor numbers steady for the month of October, at 35,000 per day.
Satellites, Grand Lisboa Palace
Regarding the third-quarter numbers, Morgan Stanley Asia Ltd analysts Praveen Choudhary and Gareth Leung mentioned colour regarding SJM Holdings’ satellite casino business, spread across 16 venues, and where the casino firm shares the economic benefits from casino operations, with other parties.
SJM Holdings’ satellite casino earnings before interest, taxation, depreciation and amortisation (EBITDA) of HKD129 million, representing a decline of 18 percent year-on-year and 28 percent quarter-on-quarter, “was affected by losses at one casino in particular; it should normalise in 2020,” stated Morgan Stanley.
All three brokerages reiterated market opinion that Grand Lisboa Palace, the casino firm’s HKD39-billion (US$5 billion) entry to the Cotai market, would at best only launch at the very end of the “second-half 2020” window mentioned by the firm. SJM Holdings’ existing Macau gaming rights are due to expire in 2022, in line with the city’s other five licensees.
Several brokerages cited management post-results commentary indicating the resort would have 8,000 staff. JP Morgan said 2,000 workers would be transferred from other properties, and that SJM Holdings would start hiring the rest approximately six months ahead of the opening.
JP Morgan and Sanford Bernstein said Macau government fire safety inspections on Grand Lisboa Palace were either under way or imminent. JP Morgan noted other inspections involved granting of the permit to occupy the venue, and checks by the Macao Government Tourism Office.
“Management remains hopeful that the property can have a grand opening in the second half of 2020,” noted JP Morgan’s Messrs Kim, An and Choi.
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