Analysts assess impact as satellite casino closures shake the market

Analysts are weighing in on the wider implications of the recently announced satellite casino closures. Of Macau’s 11 remaining satellite casinos, nine are affiliated with SJM Holdings Ltd., one is operated by Galaxy Entertainment Group, and another by Melco Resorts & Entertainment.

On Monday, SJM Holdings announced plans to close seven of its nine satellite casinos – Casa Real, Emperor Palace, Fortuna, Grandview, Kam Pek Paradise, Landmark, and Legend Palace – while it intends to acquire Ponte 16 and L’Arc Macau, pending government approval.

Galaxy Entertainment also announced the closure of its Waldo Casino, and Melco Resorts declared the closure of its Grand Dragon Casino along with three Mocha Club slot locations – Mocha Hotel Royal, Mocha Kuong Fat, and Mocha Grand Dragon Hotel – while retaining select Mocha venues, subject to government approval.

JP Morgan described the closures as a “negative surprise” in a memo yesterday. The firm noted that the transition will be more complex for SJM Holdings than for Galaxy and Melco. For Galaxy and Melco, satellite operations contributed minimally – 0 to 2% of their trailing 12-month EBITDA – making the impact “negligible.” In contrast, SJM’s satellite casinos accounted for about 4% of its EBITDA, with the reassignment of approximately 440 gaming tables.

It is understood that SJM’s Grand Lisboa Palace (GLP) stands to benefit from the reallocation of these tables. Analysts estimate that even adding 100 tables to GLP’s gaming floor could significantly boost its market share toward its target of 6%.

However, JP Morgan cautioned, “This could even result in losses from wage burdens unless SJM successfully gains meaningful market share with these additional tables.”

Citigroup highlighted potential short-term financial challenges for SJM due to excess staffing costs, similar to those experienced when earlier satellite closures occurred in 2023.

Citigroup also noted SJM’s significant net debt of HKD23.5 billion, which may complicate acquisition plans for Ponte 16 and L’Arc Macau.

It added, “We are currently unsure if SJM is acquiring the entire properties of Casino L’Arc and Casino Ponte 16 or the gaming areas only […] It is premature to gauge the impact from the potential acquisition of Casino L’Arc and Casino Ponte 16 without knowing the details of the transaction.”

Meanwhile, CLSA said in its report yesterday that they were “surprised that discontinued operations included profitable casinos” such as Casino Kam Pek Paradise. “We expect SJM’s plans to relocate tables from these satellite casinos to [the] Grand Lisboa Palace [resort] will accelerate the ramp-up, but it will take time,” noted CLSA analysts.

Despite the closures, Macau’s gaming revenue remains robust. JP Morgan reported on Monday that gross gaming revenue (GGR) reached MOP5.2 billion daily in early June.

This figure is slightly below May’s daily average but still strong for a traditionally slower month. The analysts stated that performance is partly attributed to events like K-pop concerts and the Dragon Boat Festival.

Analysts DS Kim and Selina Li project June GGR to rise 4% to 7% year-on-year, supporting a 3% to 4% increase in Q2 revenue. Such a result would mark the first quarter in some time without a revenue miss, the analysts explained.