Inside Asian Gaming

INSIDE ASIAN GAMING | June 2010 20 his country and do good service for his sovereign, is the jewel of the kingdom ,” as Sun Tzu puts it. There may not be much romance in the soul of SJM, but there is a very healthy dose of pragmatism. When the effects of Chinese visa restrictions and the global credit crisis hit the Macau gaming market in late 2008 and early 2009, SJM sharply scaled back its plans for its new property, Casino Oceanus, next door to Macau Maritime Ferry Terminal. It had originally been conceived as a US$800 million, French designed, iconic structure shaped like a sailing ship. It ended up as a much more modest HK$1.5 billion (US$190 million) box—its humble beginnings as a former shopping centre barely disguised by a shrink wrap style blue plastic façade. It doesn’t matter. Oceanus helped to contribute towards the HK$12.7 billion revenue produced by SJM in the first quarter of this year. A sign of bygone times—the original Oceanus design S JM produced HK$760 million (US$97.6 million) profit attributable to shareholders, according to its unaudited results for the first quarter of this year. That’s a 451% increase on the HK$138million profit achieved in the year earlier quarter. The improvement was due to a number of factors. One is SJM’s low level of debt relative to its Las Vegas rivals. It had HK$4.9 billion (US$630 million) of debt excluding convertible bonds as of 31st March this year. On the same date, LVS’ global debt stood at US$10.46 billion. Another factor likely to be favourably affecting SJM’s profitability is that the company’s share of the bigger margin mass-market segment has been rising, according to a conversation IAG had recently with Dr Ambrose So, Chief Executive of SJM. But more than half of SJM’s gross revenues in Q1 2010 came from satellite casinos, where SJM doesn’t own the full economic benefit of that revenue. As a result, SJM’s adjusted EBITDA for the quarter was HK$1.1 billion, providing an EBITDA margin of 8.6%. The satellite properties aren’t owned by SJM, but give a share of their revenue to SJM in return for access to the SJM gaming licence. Four new satellite properties have been added to the SJM family since 2005. There is no official limit to the number of satellites that SJM can cover with its licence; however, in practice the Macau government regulates the number of satellites allowed into the market. In the first quarter of 2010, the satellite properties contributed more revenue to Strategic Allies SJM has its forces spread across Macau In Focus