CASINO MACAU SJM : First Quarter Results 2013 -> Moderate Growth

Background

SJM Holdings Limited is the holding company of Sociedade de Jogos de Macau S.A. ("SJM"), one of the six companies authorised to operate casino games of fortune and other games of chance in casinos, under the terms of a concession granted by the government of the Macau Special Administrative Region in March 2002. SJM is the only casino gaming concessionaire with its roots in Macau, and is the largest in terms of gaming revenue and number of casinos.

SJM's casinos are located in prime locations on the Macau Peninsula and Taipa Island and convenient to principal entry points. Gaming operations are comprised of VIP table gaming, Mass Market table gaming and slot machines.

Overview

• In 1Q13, SJM recorded gaming revenue of HK$21,734M, up 10.4% YOY. Adjusted EBITDA grew 11.2% YOY to HK$2,129M. Profit attributable to owners grew 11.8% to HK$1,915M. 
• The gaming revenue accounted for 26.2% of Macau’s casino gaming market in 1Q13, down from 26.7% at the end of 2012.
• In 1Q13, VIP gaming revenue increased 13.4% YOY to HK$15,137M. Revenue from mass market gaming business was up 4.7% YOY to HK$6,220M and the slot machine revenue declined 4.2% YOY to HK$377M in 1Q13.
• The gaming revenue from Casino Grand Lisboa amounted to HK$8,327M, up 24.0% YOY and accounted for 38.3% of the total.

Suggestion

• P/E ratio is 17.6x and P/B is 6.28x.
• 2012 ROE: 36.4%
• Currently valuation is moderate. 
• We maintain BUY and HOLD rating on this counter.

Development of Cotai land

In 2012, SJM obtained the right to lease the land parcel with the area of 70,468 square meters in Cotai with an initial term of 25 years. SJM intends to build a casino gaming resort on theCotai Land. The resort may add another 700 gaming tables and 1,000 slot machines as well as 2,000 hotel rooms to SJM, which is subject to the approval of the authorities.

Income Statement

Galaxy to buy Macau gambling resort Grand Waldo for $419 million

Galaxy Entertainment Group Ltd., the casino operator that doubled its profit last year, is buying the Grand Waldo resort in Macau for HK$3.25 billion ($419 million) to lure more Chinese tourists.
Galaxy will buy Grand Waldo land and buildings, including a 29,700 square-meter hotel, from units of Get Nice Holdings Ltd., according to statements from the two companies yesterday. A casino within the Grand Waldo complex is already run by Galaxy, which holds one of Macau’s six gaming licenses.
The property, which is based on Macau’s Cotai Strip, would boost Galaxy’s presence in the area that is being built into Asia’s equivalent of the Las Vegas Strip. Casino operators from Sands China Ltd. to Melco Crown Entertainment Ltd are adding new attractions, gambling tables and resorts to draw more Chinese tourists to Cotai.
Mainland Chinese visitors propelled casino revenue in the world’s largest gambling hub to a record 304 billion patacas ($38 billion) in 2012. Galaxy, founded by billionaire Lui Che- Woo, in March reported annual profit that more than doubled.
Its 2012 net income rose to HK$7.4 billion from HK$3 billion a year earlier. Galaxy, based in Hong Kong, said in December it would invest as much as HK$50 billion to expand a separate Macau resort.
The casino operator has received approval from the government to add 50 tables between its Galaxy Macau and Starworld properties, Deputy Chairman Francis Lui said at a press conference in March. Macau is the only place in China where casino gambling is legal.
Galaxy shares have climbed 13 percent this year compared with a 0.2 percent gain for the benchmark Hang Seng Index.