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Macau Casinos: Nomura Downgrades SJM
By Isabella Zhong
SJM Holdings' (880.HK) shares are down 3% on Tuesday morning after Nomura downgraded the stock from buy to neutral.
Analyst Richard Huang says the casino operator has not gained much from Macau's high-end gaming revenue growth (GGR), while mass market customers are choosing casinos in Macau's Cotai district over SJM's flagship Grand Lisboa:
We flagged SJM as a deep-value stock in December 2016 and upgraded it to a Buy with 36% potential upside. Six months down the road, SJM has benefitted little from Macau’s GGR growth, as the city’s largest junket operator (SunCity) does not have any sizeable operations in SJM’s flagship casino (Grand Lisboa), hence the company has not benefited much from the high-end gaming recovery.
Mass market customers, on the other hand, continue to gravitate towards Cotai, with SJM and its flagship casino Grand Lisboa experiencing 8% and 9% mass GGR declines, respectively, in 2016 (underperforming other Macau Peninsula casinos like MGM Macau, which enjoyed 2% growth).
Huang expects SJM’s market share to further decline in 2017 and sees few near-term catalysts for the casino operator although a long-term catalyst could be the opening of Grand Lisboa Palace, which has been delayed until the second half of 2018.
This delay has resulted in analysts lowering the estimated earnings before interest, depreciation and amortization (EBITDA) for 2018 by 6%, with the recent rally taking the 2017 and 2018 enterprise value to EBITDA multiples to 13.3 times and 13.5 time, respectively.
The analyst has a HKD9 a share target price on SJM, which implies 14% upside. SJM shares trade at 27 times forward earnings and pay a 3% dividend yield.
Source: Barron's Asia
http://www.barrons.com/articles/macau-c ... 1499140249