SJM’S DROP SURPRISES INVESTORS

2014/11/12

From：Macau Business Daily

Analysts didn’t expect to see the one-time leader of Macau’s gaming market underperform and miss consensus. Some are maintaining a hold rating, while others are lowering estimates

SJM Holdings Ltd has performed well under analysts’ consensus by between 5 and 8 percent, posting a 16 percent drop in its third quarter results to HK$1.5 billion compared to a year ago. This is now encouraging analysts to revise down estimates for the company.
Credit Suisse wrote in its note to clients that the ‘disappointment was mainly due to a provision of HK$43 million for the additional staff bonus announced in August, and a HK$20 million one-off mark-to-market loss from trading securities.’
Union Gaming analysts lowered EBITDA estimates for the whole of 2014 to HK$8.2 billion from the previous HK$8.5 billion, while that for 2015 has been adjusted to HK$8.7 billion from HK$9.2 billion; 2016 was lowered from HK$8.4 billion to HK$8.1 billion.
In addition, analysts are maintaining their hold rating on SJM shares ‘with VIP now weak for more than half a year (and getting weaker) and the mass market taking a more recent downturn,’ the note reads. Headwinds will likely persist, analysts warn.
Meanwhile, SJM is moving five tables in the VIP section of its Grand Lisboa property to mass and converting the upper floor of the premises to electronic gaming machines, which is slated to be ready by January next year. Also, the company’s Jai Alai casino could also open sometime in 2015 depending on government permits.
‘In a slower market growth environment, casinos need to be more proactive in growing their businesses through yield enhancement efforts, player data-mining and offering of non-gaming attractions,’ analysts at Credit Suisse wrote. This, however, will likely put SJM at a disadvantage because the casino company lacks ‘non-smoking facilities and little control over how its franchise casino performed,’ analysts said.
Other analysts are remaining on the sidelines. Cameron McKnight, senior analyst at Wells Fargo Securities, LLC wrote in his latest note to clients that Beijing’s policy settings on the visa restrictions to mainland visitors, tightening of credit and anti-corruption drive are “negatively affecting growth,” which in turn is contributing to the slowdown in Macau.
Speaking to media yesterday, SJM CEO Ambrose So Shu Fai said Chinese President Xi Jinping’s visit to Macau is likely to impact the number of tourists, during which time the territory could expect to welcome less visitors.
“This year, we are seeing a decrease [in gaming revenues] because last year revenues were very high. Take SJM, for example; we had a record-high October last year. It’s not easy to compare [this year’s results] with a record [month],” Mr So said.

No certainties

All gaming operators suffered declines with the slow growth rate of Macau’s gaming industry in October – although to different degrees. Ambrose So Shu Fai, CEO of SJM Holdings Ltd, told media yesterday that mainland Chinese visitors spending less has had an impact on the company’s business. However, “we expect that in the second half of next year, Macau’s gaming market will start to recover,” he said. “We certainly hope so; but no-one can predict for sure.”
He remains optimistic that the Christmas and Chinese New Year holidays will boost business although the next two months could see decreases in gaming revenue when compared to last year. “For the whole year, there could be a slight increase when compared to last year,” Mr So added.

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