SJM Holdings (SJMHF – Research Report), the Consumer Cyclical sector company, was revisited by a Wall Street analyst today. Analyst Charlene Liu from HSBC remains neutral on the stock and has a HK$2.80 price target.
Charlene Liu has given her Hold rating due to a combination of factors. SJM Holdings’ Cotai property’s ramp-up is tracking slower than HSBC’s expectations, although its EBITDA is expected to break even in the fourth quarter of 2023. While recovery of existing properties has been pleasantly surprising, Grand Lisboa Palace (GLP), a key asset, underperformed expectations. Despite narrowing losses and turning EBITDA positive in October, GLP’s ramp-up will require time and considerable efforts in expanding the marketing team, building the customer database, and enhancing non-gaming offerings and pipeline, all in a competitive market.
Looking forward, the Gross Gaming Revenue (GGR) grew 27% month-on-month in October at the group level and 55% for GLP. However, management now expects its long-term target of achieving 5-6% market share for GLP to occur in 2025/2026 when planned adjustments and upgrades materialize. GLP currently operates at a roughly 40% reinvestment rate, higher than the industry average, to compensate for the absence of an existing premium mass database. While GLP’s non-gaming revenue exceeded expectations due to higher Average Daily Rate (ADR), the third quarter of 2023 underperformed due to GLP, recording a group EBITDA of HKD 566 million, 9% below HSBC’s estimate. Hence, Charlene Liu maintains a Hold rating, foreseeing a relatively slow but steady improvement.
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SJM Holdings (SJMHF) Company Description:
SJM Holdings Ltd. engages in casino gaming operations and gaming-related activities. It operates through the Gaming Operations; and Hotel, Catering, and Retail Operations segments. The Gaming Operations segment focuses on the operations of casinos and related facilities. The Hotel, Catering, and Retail Operations segment involves in the operation of hotel, catering, retail, and related services. The company was founded on February 17, 2006 and is headquartered in Hong Kong.
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