Brokerage Seaport Research Partners has expressed concerns about the slow ramp-up at SJM’s flagship property, the Grand Lisboa Palace (GLP) in Cotai.
Senior analyst Vitaly Umansky believes the sluggish performance could result in a long-term return on investment (ROI) that is less than optimal for the company and its shareholders.
These concerns follow SJM Holdings’ 2Q24 results. Although the ramp-up at GLP is critical for the stock to gain positive momentum, the performance so far—particularly in the latest quarter—has been ‘weak,’ achieving only a 2.2 percent market share. While this marks a 22 basis point increase quarter-over-quarter, it was partly bolstered by a high VIP hold of 3.7 percent.
SJM’s management noted that GLP’s market share improved slightly to 2.5 percent in July. However, Umansky indicates that – while GLP is expected to continue progressing – the ROI remains exceptionally low and is unlikely to achieve positive value creation relative to the investment cost in the foreseeable future, if at all.
Despite the company hiring additional sales and marketing staff during the quarter, mass table revenue fell below expectations in 2Q24. Seaport anticipates that building out the marketing and service capabilities for premium mass will also take additional time. While costs were largely stable during the quarter, they are expected to rise at GLP over the next few quarters.
One positive development is the continued reduction of excess costs from shuttered satellite casinos, which has led to EBITDA profitability in that segment. However, due to the current gaming law, the future of satellite casinos beyond 2025 remains uncertain.
The company is also continuing to reduce debt with free cash flow.
The brokerage does not anticipate a resumption of dividend payments until after 2025.
Seaport noted that, while SJM’s 2Q24 results showed slight quarter-on-quarter improvement, this was partly driven by excess cost reductions in the satellite business and stronger-than-expected performance in the VIP and slots segments. However, this was offset by weaker-than-expected results in the mass and non-gaming segments. At Grand Lisboa, the VIP hold was low at 2.6 percent, but this was largely balanced by a higher hold of 3.7 percent at GLP.
SJM’s revenue for 2Q24 was HK$6.88 billion ($882 million), reflecting a 0.6 percent decrease quarter-over-quarter, a 28.3 percent increase year-over-year, and an 18.2 percent decline compared to 2Q19.
EBITDA stood at HK$870 million ($111.6 million), up 0.7 percent sequentially and 102.3 percent yearly, but still 13.3 percent below 2Q19 levels. The net loss for the quarter totaled HK$88 million ($11.3 million), compared to a HK$74 million ($9.5 million) loss in 1Q24.
Market share for the quarter was 12.6 percent, an increase from 12.4 percent in 1Q24, with operated casinos (excluding satellites) holding a 7.8 percent share. Management noted that July’s market share was 13.5 percent, which they believe is unusually high and likely to decrease in the remainder of the quarter.
