SJM profit misses estimates as it loses gamblers to rivals

2014-5-13

From：Macau Daily Times

SJM Holdings Ltd., Asia’s largest casino operator by revenue, posted first-quarter earnings that missed analyst estimates as it lost customers to rivals in the popular Cotai area, where it doesn’t have a presence.
Adjusted earnings before interest, taxes, depreciation and amortization, or adjusted Ebitda, rose 3 percent to HKD2.2 billion (USD283.8 million) in the three months ended March, SJM said in a Hong Kong stock exchange statement yesterday. That compared with the HK$2.28 billion average estimate from six analysts compiled by Bloomberg. The growth rate for adjusted Ebitda was 11 percent a year earlier.
Competition is intensifying for the owner of the Grand Lisboa casino in Macau’s city-center as operators including Sands China Ltd. and Galaxy Entertainment Group Ltd. lured gamblers with shopping, dining and theatrical shows to their resorts on the Cotai Strip, where SJM isn’t scheduled to have a property until 2017. SJM has also lost its No. 1 market share position in Macau to Sands China by a slight margin during the quarter, according to Deutsche Bank AG analyst Karen Tang.
Gaming revenue climbed 5 percent to HK$22.79 billion during the three-month period. SJM, which controls 20 of the 35 casinos in the world’s largest gambling hub, said its gaming revenue from VIPs, or high-stakes bettors, fell 4 percent last year to HK$14.5 billion, while that from the mass market increased 28 percent to HK$7.9 billion.
“It is becoming more common to see certain months in which Cotai has 50 percent or more market share in the mass table segment, particularly so in the busier seasons,” Phoebe Tse and Vineet Sharma, analysts at Barclays Plc, wrote in a report last month. “We expect the shift of revenue share to Cotai to continue going forward, particularly in the mass segment.”
Barclays favors the Cotai operators, such as Sands China and Galaxy, because of the expected stronger growth this and next year, the analysts said.
SJM climbed fell 1 percent to HK$20.9 in Hong Kong trading before the earnings announcement. The stock has fallen 20 percent this year, compared with the 4.5 percent decline in the city’s Hang Seng Index.
Sands China overtook SJM in the first quarter to become a market leader with a 23.2 percent share, comparing to SJM’s 23 percent, Tang of Deutsche Bank wrote in a note this month. It had a 26 percent share in the first quarter last year, SJM said in a statement yesterday.
SJM’s market share for mass table revenue dropped to 25 percent from 28 percent a year ago, while it rose to 31 percent from 29 percent for Sands China, according to Barclays.
The company’s earnings are expected to improve in the second half of the year with new table capacity added at its main casino Grand Lisboa, Barclays analysts wrote.
SJM has stepped up efforts to gain the so-called premium- mass players, who place bigger stakes than mass-market bettors and incur lower costs than VIPs brought in by middlemen.
Its performance in the second half should be helped by the company’s move to dedicating more gambling tables to cater for the premium gamblers. They bet in cash, unlike the high rollers who gamble with credits provided by middlemen agents, who charge casino operators a commission to bring them into their properties.
The former casino monopoly in February broke ground on its first resort in Cotai Strip. SJM, the last of the Chinese city’s six casino operators to receive government approval to develop a resort in Cotai, is scheduled to open its HK$30 billion Lisboa Palace in 2017.
Gaming revenue in Macau rose 20 percent to 102.2 billion patacas ($12.8 billion) in the first quarter. The former Portuguese enclave gets more than two-thirds of casino revenue from high rollers.

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