Missing out on Cotai
SJM Holdings Ltd. was down for the third quarter, results attributed by brokerage Sanford C. Bernstein to “disappointing” returns in both mass and VIP play “relative to overall market growth in Q3, with share loss evident in both segments.”
Gaming revenues for the quarter actually were up slightly by 0.6 percent to HK$10.012 billion (US$1.283 billion), but adjusted EBITDA was down 10.4 percent and revenue for the first nine months of 2017 was down 1.2 percent over 2016 to HK$30.39 billion. According to Inside Asian Gaming, profit attributable to owners of the company from July through September was HK$428 million, down 16.5 percent year-on-year.
Delays of the company’s HK$36 billion integrated resort on the Cotai Strip isn’t helping. The Grand Lisboa Palace, now scheduled to open in late 2018, could be pushed back once again to 2019 due to damage from Typhoon Hato and the fallout from the death of a construction worker in June. That latter incident halted construction for six weeks.
“The group is currently working with its contractors to restore the affected areas as quickly as possible with the aim of completing the project by the end of 2018,” SJM said in its earnings announcement. “The company is conducting a detailed assessment on the overall schedule of the project and will inform the market as and when appropriate. The group believes that the total project cost remains on budget at approximately HK$36 billion.”
GGR at SJM’s Grand Lisboa was HK$3.71 billion, up 19.3 percent year-on-year. VIP gaming revenue there increased 7.4 percent to HK$4.79 billion, but mass was down 4.6 percent to HK$5.05 and slot machine revenues dropped 7.7 percent to HK$251 million.
“In spite of Typhoon Hato and other events that affected our Grand Lisboa Palace project in the third quarter of 2017, the effects of which are still being assessed, we are working full speed on construction of the project in Cotai with full confidence in the future of our business and Macau,” said SJM CEO Ambrose So.
Union Gaming analyst Grant Govertsen said SJM’s “lack of a presence on Cotai makes for a very challenging operating environment. We expect the company to be a share donator for the foreseeable future and largely unable to participate in the ongoing market recovery.”
Overall in Macau, prospects look bright. According to Secretary for Economy and Finance Lionel Leong, gross gaming revenues will see “positive double-digit growth” over 2016, more than original forecasts.
The government’s current reserves amount to MOP505.2 billion (US$62.8 billion), Leong noted.
Morgan Stanley analysts contend that GGR for the gaming hub could reach US$53 billion in 2022, driven by infrastructure, visitation and rising spending growth. In its report, “Macau 2022: Power of Compounding,” the brokerage said it expects the sector market cap to more than double by 2020, reaching $230 billion.
“We think the quality of growth will be better, as more than 80 percent of the forecast profit should come from the mass market segment,” the analysts wrote. “Starting in 2018, we expect to see game-changer infrastructure developments with respect to HK-Zhuhai-Macao Bridge and Hengqin. We also think that by 2022, there will be clarity around license renewal, development capex and infrastructure ramp.”
