SJM not planning to cut staff or compensations – Brokerage

Analysts at Sanford C. Bernstein indicated that despite the negative results in the first quarter of this year, SJM management is optimistic and ‘does not plan on cutting any local staff or reducing compensations at this point’.

SJM Holdings Limited has reported a 148 per cent year-on-year drop in net profits to some HK$409 million (US$52.7 million) in losses for the first quarter of this year, with adjusted EBITDA also declining 118.6 per cent year-on-year to a negative HK$200 million.

‘SJM has reduced overhead costs by about 6 per cent (from ~HK$15 million/day to ~$14mm/day), mostly in operating and administrative expenses […]. Management is very optimistic that Macau can get back to its prior levels but is uncertain around the timing of recovery (which is dependent on when border restrictions lift,’ the brokerage indicated in a note.

The gaming operator was also said to have requested relief from complying with financial covenants for a period of six quarters on an HK$15 billion syndicated loan, with Bernstein considering that the group ‘should have no problem obtaining such waivers, which are similar to others provided to local gaming operators.

SJM is also said to be planning to transfer about 1,000 of its employees to the future Grand Lisboa Palace in Cotai in order to improve cost structure on the Peninsula.

Local authorities have begun the inspection and application process for its future Grand Lisboa Palace integrated resort, with project projected to be open by the end of 2020, depending on authorisations and permits.

Accoridng to brokerage Union Gaming, SJM has incurred HK$33 billion of an all-in HK$39 billion budget for the integrated resort.

‘Of the remaining HK$6 billion left to spend, a large portion will likely not hit cash until 2021 to coincide with the timing of delivery and final payment on contracts, helping to mitigate any additional cash burn this year,’ Union Gaming indicated.

The brokerage also estimates the property will only open in the first quarter of 2021 opening with revenue beginning to hit financial reports in the second quarter of that year.

Union Gaming also addressed that in the near-term, easing travel restrictions from Hong Kong and Guangdong would be the key catalyst for the local gaming sector.

‘These entry points to Macau would likely provide enough demand for operators to return to profitability and stop the cash burn. That said, the risk of a resurgence of infections and future lockdowns still remains and is one of the reasons we are more cautious on Macau generally,’ the brokerage added.