‘Tepid’ GLP, dividends at SJM only after 2025: analyst

May 10, 2024 Newsdesk Latest News, Macau, Top of the deck  

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“Tepid” and “disappointing” were words used by some brokerages to refer to the business ramp up at Macau casino resort Grand Lisboa Palace (GLP), which opened in July 2021 amid the Covid-19 pandemic, and has struggled to gain traction in terms of gambling market share, even since the lifting of travel restrictions at the start of 2023.

JP Morgan Securities (Asia Pacific) Ltd, source of the Friday comment about Grand Lisboa Palace being “disappointing”, nonetheless highlighted some initial recovery for the resort’s promoter, SJM Holdings Ltd, following the Thursday publication of the Hong Kong-listed casino firm’s first-quarter results highlights.

Separately, analyst Vitaly Umansky of Seaport Research Partners, had said in a Thursday summary, that Grand Lisboa Palace’s “ramp up so far, and in the latest quarter, remained tepid, achieving only 2.0 percent market share” rather than the management’s target of 5 percent, in terms of casino gross gaming revenue (GGR).

While the HKD39-billion (US$5.0-billion) Cotai property’s first-quarter GGR share was “up 30 basis points quarter-on-quarter, this was largely due to high hold in VIP,” added the analyst.

“We expect the ramp up at Grand Lisboa Palace to remain slow and the long-term return on investment on Grand Lisboa Palace… is likely to be suboptimal,” stated Mr Umansky.

He added: “The strategy around Grand Lisboa Palace is still being worked on, with one key area of concern being the premium mass marketing effort, where sales staff remains too low.”

He added that there were 113 such sales staff, and the company “hopes to get to 200 sales staff in a very competitive market for such positions”.

Mr Umansky observed: “We expect the build out of marketing and service capability for premium mass to take some time.”

According to the analyst, with capital expenditure in the range of HDK1.5 billion (US$192.0 million) to HKD1.6 billion estimated for 2024, “and leverage remaining high,” SJM Holdings’ management “indicated that dividend resumption is not occurring in the foreseeable future”.

“We do not expect dividend resumption until after 2025,” he added.

JP Morgan’s Hong Kong-based gaming analysts said SJM Holdings “has been the worst performer” among Macau’s six casino concessionaires “for the past 12-month, 24-month, 36-month periods due to (very) disappointing execution on its flagship Grand Lisboa Palace”.

SJM Holdings “pace of deleveraging (or lack thereof) has been very disappointing because SJM is the only Macau … operator that hasn’t yet been able to generate meaningful free cash flow,” added analysts DS Kim, Mufan Shi and Selina Li in a Friday memo.

This was against the backdrop of “heavy debt servicing costs,” which the brokerage identified as HKD1.8 billion to HKD2 billion per year, as well as maintenance and casino concession capital expenditure of “HKD1.5 billion this year”.

SJM Holdings – founded by former Macau gaming monopolist Stanley Ho Hung Sun – reported adjusted earnings before interest, taxation, depreciation, and amortisation (EBITDA) of HKD864 million for the first quarter of 2024, compared with HKD31 million a year earlier.

The first-quarter 2024 loss attributable to shareholders was HKD74 million, an improvement on the HKD869-million loss in the prior-year quarter.

JP Morgan acknowledged that the quarter had been “pretty solid, with directional improvements across the top and bottom lines”.

The brokerage added that based on “management’s comment about continued share gains at its flagship Grand Lisboa Palace,” it was revising up its “full-year 2024-25 [adjusted] EBITDA” forecast “by about 5 percent”.

That moved JP Morgan’s figure for 2024 to just under HKD3.90 billion, from its prior forecast of HKD3.70 billion.

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