Macau casino operator SJM falls short of market expectations with 16.5pc profit drop in third quarter

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SJM Holdings, one of Macau’s six major casino operators, posted a 16.5 per cent slump in its third-quarter net profit from a year ago, squeezed by declining revenue in its mass market gaming business.

The net profit of HK$428 million (US$54.8 million) for the quarter missed the HK$496.5 million consensus estimate by analysts polled by Bloomberg. The net profit for the nine months ended in September was also down 14.1 per cent on the year to HK$1.38 billion.

While the company saw the return of its high rollers on the back of a 7.4 per cent rise in revenue from the VIP segment to HK$4.73 billion in the quarter, revenue from its mass market gaming business declined.

Revenue from mass market gaming and slot machine segments slid 4.6 per cent and 7.7 per cent to HK$5.04 billion and HK$251 million respectively in the third quarter, compared with a year ago.

But with time, SJM’s fortunes would change, analysts say, as well as those of its five rivals – Sands China, MGM Macau, Wynn Macau, Galaxy Entertainment and Melco Crown, thanks to Beijing’s push of the ambitious ‘Greater Bay Area’ initiative that is likely to give the city’s gaming revenues a boost in the coming years.

The planned 56,500-square kilometre area is aimed at connecting Hong Kong, Macau and nine cities in the southern Guangdong province into an integrated economic and business hub.

Gaming revenue slump deals Macau casino operator SJM a poor hand, as gambling tables fail to attract big spenders

“What we view as game-changing mass demand drivers should unfold from 2018 and onwards, such as the HK-Zhuhai-Macau Bridge or potential policy support on the Greater Bay Area,” wrote JP Morgan analysts DS Kim and Sean Zhuang in a recent note.

What we view as game-changing mass demand drivers should unfold from 2018 and onwards …

JP Morgan analysts

The analysts said in the note that 2018 could be a milestone year for Macau’s infrastructure development and policy benefits, which the market had so far overlooked.

“Time is on our side, we think,” they wrote.

In its earnings announcement on Tuesday, SJM said its HK$36 billion Grand Lisboa Palace – an integrated resort on Cotai – was expected to be completed by the end of 2018. The resort’s completion would address criticism of the company’s profits being weighed down by its lack of presence in the Cotai area, according to analysts.

SJM, owned by the family of casino mogul Stanley Ho, operates 19 casinos and two hotels in the former Portuguese colony bordering Hong Kong. The operator posted a 12.9 per cent decline in net profit to HK$955 million for the first six months of the year, as its mass market tables dropped by 0.5 per cent, while VIP-room gaming revenue also declined by 3.4 per cent during this period.

Shares of SJM traded up 0.6 per cent to HK$6.70 at the close on Tuesday. Its share price has added more than 22 per cent since a year ago on the Hong Kong bourse.

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