Brokerage Sanford C Bernstein says it expects shares in Macau concessionaire SJM Holdings to continue to drop with “little improvement possible” in a damning assessment of the company’s future prospects.
In a Friday note, analysts Vitaly Umansky, Zhen Gong and Kelsey Zhu outline a number of risks facing SJM in the long-term, most notable among them being the possibility of losing some or all of the satellite casinos it currently controls under external operators should the Macau government grant some satellite owners direct licenses.
“SJM has the second largest number of gaming tables in Macau, however 53% of SJM tables (47% of VIP tables, 54% of mass tables) are in satellite casinos,” Bernstein said. “The satellite business generates less than a quarter of SJM’s EBITDA,” yet, “due to the complex relationships between SJM and the satellite casino owners, these tables are not fully under the control of SJM and difficult to be put to better use.
“Moreover, there has been concern about whether all the satellite casinos will remain under SJM when current concessions expire in 2020 or 2022 … in the long run, there is a risk for SJM to lose its satellites business if the Macau government decides to grant new licenses to the satellite casino owners.”
SJM has suffered significantly from the lack of a Cotai presence in recent years, with its Macau GGR market share falling from a high of 31.3% in 2010 to just 15.0% today.
However, Bernstein has warned that even the long-awaited opening of SJM’s Grand Lisboa Palace – coming at least 18 months after the last of its fellow concessionaires launched their Cotai properties – may not spark the revival the company is banking on.
“We expect Grand Lisboa Palace will not open until late 2019 or even 2020,” Bernstein said.
“Due to the high construction cost of the property and low ROI in the first few years, we foresee poor value creation for the Grand Lisboa Palace compared with other new Cotai properties.”
Bernstein also took aim at recent board movements following the retirement last month of the company’s kingpin, Dr Stanley Ho, which saw his daughter Daisy Ho appointed Chairman, wife Angela Leong promoted to Co-Chairman and Executive Director and ex-wife Ina Chan elevated to the board.
“Governance remains convoluted,” the analysts said. “Instead of using Stanley Ho’s retirement as an impetus to make governance and management changes, the company has opted to further entrench the status quo. A hydra-like three headed co-chairman group and the elevation of entrenched management is not an indication that any shake up at the company is forthcoming.”
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