SJM Holdings 1Q22 loss widens, cash burn seen as worrying

grand lisboa palace

SJM Holdings reported a doubling in its 1Q22 net loss and analysts said its cash burn remains a concern with a critical need to shore up liquidity.

The loss attributable to owners of the company came in at HK$1.28 billion, compared with a loss of $647 million a year earlier. The loss at the adjusted EBITDA level widened to $474 million, from $319 million. Analysts at Bernstein said the EBITDA loss was an improvement from the prior quarter and better than its consensus. But the figure didn’t include some $132 million in pre-opening expenses related to the Grand Lisboa Palace.

“Including the pre-opening expenses, the EBITDA loss would have been more than $600 million, (closer to our estimate), Bernstein said, adding it’s the only operator not to achieve EBITDA breakeven since the borders reopened with China in September 2020.

Gross gambling revenue fell 4.2 percent to $2.54 billion.

The company said VIP gross gambling revenue fell 29 percent to $344 million, while mass gaming revenue edged up 0.3 percent to $2.05 billion. Slot machine gross revenue was up 19.5 percent to $139 million. 

“Inbound tourism is still being profoundly impacted by the COVID-19 pandemic,” said vice chairman and CEO Ambrose So. “Given our confidence, however, in the eventual recovery of Macau tourism and in SJM’s prospects for obtaining a new concession extending beyond 2022, we have continued to introduce additional elements in retailing and F&B at our new Grand Lisboa Palace, whilst focusing on cost controls and efficiency.” 

The company opened the Grand Lisboa Palace in July last year. The resort generated total revenue of $271 million in the quarter, with gaming accounting for $156 million. Its adjusted property EBITDA was a loss of $216 million after adjusting for pre-opening expenses. 

The group’s Macau Peninsula hotel, the Grand Lisboa reported gross revenue of $592 million, with GGR accounting for $551 million. That’s down from $585 million in the year-ago quarter.

Adjusted property EBITDA narrowed to a loss of $128 million, compared with $143 million the prior year. 

SJM, which is seen as the weakest of Macau’s six operators in terms of financial strength, in part due to the costs associated with the Grand Lisboa Palace, said it had cash and available funds of $1.75 billion and debt of $22.81 billion at the end of the quarter. 

It said it extended the maturity of its syndicated banking facilities in February and expects to complete refinancing of these facilities this quarter. 

“SJM is still finalizing the refinancing of its bank debt (management expect this to be done in Q2); however, the continued delays raise concerns and SJM faces some liquidity risk if the business environment does not improve materially in the near term,” Bernstein said.

“Management has indicated that a standby loan facility of up to HK$5bn may be forthcoming from controlling shareholder STDM but no details were provided. SJM hopes to increase the bank financing to HK$ 19bn (from existing $13.3bn) which would give the company increased liquidity,” it said.

The company currently has sufficient liquidity on hand for three to four months, the analysts said.

The group said its satellite casinos saw GGR fall 12.4 percent to $1.48 billion, although they posted positive adjusted property EBITDA of $34 billion. 

SJM did gain some market share in the quarter to 14.7 percent, which was up 1.8 percent from 4Q21. However, Bernstein said the gains were mainly due to an improvement at Grand Lisboa and self-promoted casinos than the Macau flagship, which only edged up 20 basis points in terms of market share.

“Opening into the current market has been tough and has led to continued cash bleed that will not let up in the near term,” Bernstein said.