By Ben Blaschke
SJM’s long-awaited Cotai landmark Grand Lisboa Palace is shaping up to be “make or break” for the Macau casino operator as it looks to overcome shrinking market share, according to a new research report from brokerage Sanford C Bernstein.
Titled, “The competitive landscape in Macau – a look at the six gaming operators,” the report identifies a number of looming concerns for SJM, which will be the last of the six concessionaires to launch in Cotai when Grand Lisboa Palace opens in 2Q18.
Among them are its aging fleet of satellite casinos, management issues and most importantly its current lack of a Cotai presence which has seen rival operators claim a growing slice of Macau’s VIP and premium mass business.
“SJM has significant exposure to low quality peninsula-based satellite properties and a lack of scale and product quality to focus on premium mass,” says the report by Bernstein’s Vitaly Umansky, Zhen Gong and Yang Xie.
“The company is losing market share in both VIP and mass as players move to higher quality offerings. Until Grand Lisboa Palace opens in 2018, SJM lacks presence on Cotai.
“The key catalysts to look at [include] over-reliance on satellite casinos which are uncompetitive and losing ground in defending its VIP market share – the company would need to reverse this trend, but it may be difficult in light of competition.
“Grand Lisboa Palace may be a ‘make or break’ development for the future of SJM.”
The report points to the vastly improved size, scale and quality of properties on Cotai luring customers away from the Peninsula, subsequently placing pressure on both SJM and MGM China – the only two concessionaires yet to open their Cotai properties – to stay relevant.
However, it says the greater question marks hang over SJM given that so many of its satellite properties lag behind the offerings of other concessionaires.
“SJM used to be the dominant VIP operator when looking at both its owned business and the satellite operation,” it says. “However, SJM has been experiencing market share loss in both divisions as the property quality is lacking relative to competitors and many junkets prefer to work with other operators. The satellite business will continue to suffer share loss.
“Grand Lisboa Palace may allow SJM’s owned casino business to regain some lost share … the opening of Grand Lisboa Palace will be the real test of the company’s ability to stem the tide.”
While the report notes that MGM China will have work to do to make up for lost market share when its MGM Cotai property opens later this year, it adds that, “Market share losses will likely be stemmed and reversed when the MGM Cotai opens and ramps up.”
The report notes that MGM Cotai will be the largest incremental expansion with respect to footprint, room inventory and gaming capacity relative to other operators, while MGM Macau has continued to deliver outsized results – generating around 8% of Macau’s gaming revenue despite boasting just 6% of tables and 2% of hotel room inventory.
