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China – SJM at risk of losing some of its satellite casinos

By - 10 July 2018

Brokerage Sanford C Bernstein believes that the Macau government could offer licences currently exploited as satellite casinos with concessionaire operator SJM Holdings to its satellite partners.

The analytical group believes that there is ‘little improvement possible’ for SJM, who has lost market share to rival casinos over the last decade. Eight years ago it accounted for 31.3 per cent of Macau’s GGR. That figure is currently down to 15 per cent.

Analysts Vitaly Umansky, Zhen Gong and Kelsey Zhu said: “SJM has the second largest number of gaming tables in Macau, however 53 per cent of SJM tables (47 per cent of VIP tables, 54 per cent of mass tables) are in satellite casinos. The satellite business generates less than a quarter of SJM’s EBITDA. 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’s satellite casinos include The Golden Dragon and The Grand Emperor Hotel & Casino. The analytical group was also critical of delays to the group’s arrival in Cotai.

.“We expect Grand Lisboa Palace will not open until late 2019 or even 2020,” the brokerage added. “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.”

It also criticised board changes following the retirement of its long-time leader Stanley Ho.

“Governance remains convoluted,” it 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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