By Kate O’Keeffe
Of DOW JONES NEWSWIRES
HONG KONG (Dow Jones)–SJM Holdings Ltd. (0880.HK), Macau’s largest casino operator by revenue, reported Monday a third-quarter net profit that was more than six times the year-earlier level, driven by sharp growth in high roller gambling revenue.
SJM, controlled by casino tycoon Stanley Ho, said its net profit for the three months ended Sept. 30 jumped to HK$867 million ($112 million) from HK$138 million in the same period last year.
Revenue rose 69% to HK$14.1 billion from HK$8.34 billion, boosted by a 100% jump in VIP gambling revenue to HK$9.38 billion as the company operated an average 474 tables for high rollers in the third quarter, compared with 239 in the corresponding quarter of 2009.
However, RBS analyst Philip Tulk said: “the results were slightly disappointing because sequentially they were weak against the market in terms of both VIP and mass market revenue.” He noted that SJM’s high roller volume grew only 1% in the quarter compared with the overall market’s 5% jump. In terms of mass market business, SJM’s volume rose 3% compared with the market’s 5% gain, he said.
Strong growth in gambling revenue in the Chinese territory since the second half of 2009 has propelled record-setting third-quarter results at Macau casino operators such as Las Vegas Sands Corp. unit Sands China Ltd. (1928.HK) and Melco Crown Entertainment Ltd. (MPEL).
Macau gambling revenue from January to October jumped 59% to MOP152.11 billion ($19.05 billion). SJM led the market with a 33% share in October, according to a JP Morgan report.
SJM’s adjusted earnings before interest, taxes, depreciation and amortization, a measure widely used to evaluate the performance of gambling companies, more than doubled to HK$1.178 billion in the third quarter, in line with Nomura’s HK$1.18 billion estimate. SJM’s performance was slightly lower than Bank of AmericaMerrill Lynch’s HK$1.198 billion forecast and better than Credit Suisse’s HK$1.112 billion estimate.
The company improved its adjusted Ebitda margin to 8.4% in the third quarter from 6% in the same period in 2009. But according to analysts on a conference call closed to media, Frank McFadden, president of joint ventures and business developments at SJM, suggested that margins could be lower going forward because of the rising proportion of high roller business, which is less profitable than mass market play. It is possible that higher VIP volume could make up for a shortfall in margins.
There were no specific updates on the company’s plans for expansion in Macau’s fast-growing Cotai area, but Chief Executive Ambrose So said in a statement that the company has “maintained the strength of (its) balance sheet, which positions (it) well for future expansion of (its) gaming and gaming-related businesses in Macau.”
As of Sept. 30, SJM had HK$13.53 billion in cash.
So said in an interview with Dow Jones Newswires in September that SJM had sent a letter to the Macau government expressing interest in land on Cotai in which rival Sands China has already invested more than $100 million. He also said he expects land ownership rights on Cotai to be granted to SJM, Wynn Macau Ltd. (1128.HK) and MGM Macau by the end of this year.
Credit Suisse analyst Gabriel Chan wrote in an earnings preview report: “the announcement of a detailed development plan for (SJM’s) new project in Cotai, which we expect to be as early as in first quarter 2011, could be a rerating catalyst,” noting the company’s 35% valuation discount to peers.
The company didn’t recommend a dividend.
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