HONG KONG (Dow Jones)–Casino operator SJM Holdings Ltd. (0880.HK) reported Monday a 14% rise in 2009 net profit on stronger gambling revenue in the second half, and said the Macau government’s new policy to cap gambling tables won’t affect the company.
The rise in SJM’s profit follows a roaring comeback in Macau gambling revenue from the second half of 2009 after it was pummeled by the global economic downturn, a swine flu outbreak and mainland China visa restrictions.
The company, controlled by Macau gaming tycoon Stanley Ho, said its net profit for the 12 months ended Dec. 31 was 906.7 million Hong Kong dollars (US$116.8 million), up from HK$796.1 million a year earlier, after weathering a 41% fall in first-half net profit on top of a 48% drop in 2008.
The result was higher than the average net profit forecast of HK$870.03 million in a Thomson Reuters poll of eight analysts.
SJM, Macau’s largest casino operator by revenue, reported a 22% rise in revenue to HK$34.35 billion from HK$28.17 billion a year earlier. The company’s gambling revenue rose 22% to HK$34.07 billion, helping the company improve its gambling revenue market share in Macau to 29.4% from 26.5% in 2008.
Gambling revenue in the city has jumped 66% on year in the first two months of 2010, media reports said. Casino revenue hit a record 14.05 billion Macanese patacas (US$1.76 billion) in January, according to government statistics. Analysts said the record could be broken in March with revenue likely to rise as high as MOP15 billion.
Macau’s strong revenue numbers present a policy challenge for the government, which has said it wants to diversify the city’s economy away from the gambling industry and turn Macau into a popular leisure and entertainment destination.
Macau’s top gambling official, Francis Tam, told legislators last week that the total number of gambling tables will be capped at 5,500 from 5,000 and the government won’t approve new casino projects until 2013.
In the first comments by a casino operator directed at the cap, SJM Chief Executive Ambrose So told Dow Jones Newswires Monday that the policy won’t have any impact on the company because it has no short-term expansion plans and that he believes the policy is instead aimed at future expansion projects.
So added that he doesn’t think the government will ask any of the six casino operators to cut back on current tables.
In an interview, So said the company will hold back its plans to expand in Macau’s Cotai area for now because “we think that the critical mass hasn’t grown to such an extent that would warrant our investment there.”
SJM said it expects to benefit from the increase in its gambling capacity introduced in the second half of last year, as well as from improvements in its operating efficiency.
The company said its high-roller VIP gaming revenue rose 25% to HK$20.02 billion, accounting for 59% of its total gambling revenue, while revenue from mass market gaming rose 18% to HK$13.04 billion, and accounted for 38% of the total revenue.
The poor health of SJM Chairman Stanley Ho has remained an overhang on SJM’s stock in recent months, leading to lower trading valuations versus peers, analysts say.
But So said he doesn’t believe Ho’s health will affect the management of the company. Ho left the hospital earlier this month after a seven-month stay.
“One thing we have to separate is ownership and management. Ownership is within his family. Management… we have independent directors and we have professionals running the casino operation,” said So.
“There is enough for us to do in the next 10 years,” he said.
So also said new service agreements with third-party operators signed last year, under which the service providers rather than the company bear the casino operating expenses, will likely improve the company’s profitability this year. He said the more favorable terms could contribute HK$500 million to HK$600 million in net profit for the company this year.
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