Brokerage CLSA has raised Macau gaming operator SJM’s EBITDA forecast by 9.3 percent for the calendar year of 2024 following the company’s strong first-quarter results.
According to an investment memo released on Friday, CLSA also raised its 2025 EBITDA forecast for the company by 2.9 percent as the research team increased its non-gaming revenue forecasts and margin assumptions for Grand Lisboa and Grand Lisboa Palace (GLP).
In addition to raising its non-gaming revenue assumptions, the investment bank also lifted the margin forecasts for Grand Lisboa and GLP based on SJM’s performance in the first quarter. However, analysts caution that ‘the scope of margin expansion could narrow sequentially going forward as SJM continues to increase its salesforce while salary adjustments also kick off from 2Q24 onwards.’
According to SJM’s 1Q24 financial results, the company recorded a 74.5 percent year-on-year increase in net gaming revenue in the quarter, reaching HK$6.46 billion ($827 million).
During the same period, the group’s adjusted EBITDA increased from HK$31 million ($4 million) in 1Q23 to HK$864 million ($110.5 million) in 1Q24.
In the financial results highlights, SJM noted that its adjusted EBITDA margin in 1Q24 improved from 0.8 percent in 1Q23 to 12.5 percent in the most recent quarter. Additionally, the loss attributable to owners of the company narrowed to HK$74 million ($9.5 million) in 1Q24.
Despite SJM’s relatively positive 1Q24 results, CLSA sees ‘no shortcut’ for GLP to reach the targeted fair gross gaming revenue market share of around 5 percent. According to the latest market share data in April, GLP only holds 2.2 percent of market share.
Analysts emphasize that patience is still needed for GLP’s market share ramp-up to the targeted 5 percent.
‘With various ongoing properties’ revamp in the Cotai strip, GLP’s connectivity remains the key issue, and we believe it will take at least several years for new infrastructure to be built, such as a pedestrian bridge connecting to the Cotai East light rail station, roughly 800 meters away.’ it adds.
Dividends unlikely to return before 2026
CLSA indicates that SJM’s good 1Q24 results suggest effective cost control at GLP, as the underlying EBITDA margin expanded from 0.2 percent in 4Q23 to 10.2 percent. The calculation excludes one-off opening costs of HK$58 million ($7.4 million) at Palazzo Versace Macau.
Heading into 2Q24, SJM’s business momentum remains intact as the centralized platform (known as “one-SJM”) for Grand Lisboa and GLP continues to optimize asset efficiency in both properties. CLSA notes that ‘SJM is poised to turn around on the bottom line in the next quarter. However, we do not anticipate dividends returning before 2026.’
