SJM Holdings Limited’s (SJM) first quarter financial results showed slight improvements and met analyst expectations, but the slow ramp-up at Grand Lisboa Palace amidst a robust Macau recovery was worrying for the gaming operator, brokerage Seaport pointed out.
In a recent dispatch, Seaport analyst Vitaly Umansky affirmed that SJM’s performance for the first quarter was largely in line with forecasts and primarily driven by a high hold in VIP segments at Grand Lisboa and GLP.
‘Despite efforts, the ramp-up at GLP has remained sluggish, with the latest quarter only achieving a 2.0 percent market share. This marginal improvement of 30 basis points quarter-on-quarter was mainly attributed to high hold in VIP segments,’ Umansky says.
‘Without this factor, GLP’s market share would likely have been at 1.9 percent. Management estimated that GLP’s April market share might have approached 2.2 percent’.
The slow pace of ramp-up at the Grand Lisboa Palace raised concerns about the long-term return on investment.
While SJM’s first-quarter revenue increased by 8 percent quarter-on-quarter, reaching HK$6.9 billion ($883 million), and EBITDA rose by 24 percent quarter-on-quarter to HK$864 million ($110.5 million), these figures heavily relied on high VIP hold, with SJM reporting a net loss of HK$74 million ($9.5 million).
The Seaport dispatch argues that the GLP ramp-up is suffering from inadequate sales staff for premium mass marketing efforts. SJM currently employs 113 sales staff, with plans to increase this number to 200.
‘We expect the build out of marketing and service capability for premium mass
to take some time […], the ramp up at GLP to remain slow and the long-term ROI on the GLP investment is likely to be suboptimal’ the Seaport dispatch pointed out.
Additionally, Umansky noted that SJM’s satellite business remains unprofitable due to ongoing excess costs from closed casinos.
Recurring operational costs rose by 2.7 percent quarter-on-quarter, and it’s anticipated that costs and player reinvestment will increase notably at GLP as the company expands its premium mass capabilities.
SJM’s capital expenditure for the year was also estimated to be between HK$1.5 billion ($191.9 million) to HK$1.6 billion ($204.7 million), with leverage remaining high and management indicating that dividend resumption is unlikely in the foreseeable future, possibly not until after 2025.
