GAMING | SJM sees China’s anti-graft fallout lasting 6 more months

Ambrose So

SJM Holdings Ltd. Chief Executive Officer Ambrose So said he’s bearish about Macau gambling revenue from high rollers over the next six months as Chinese President Xi Jinping escalates his anti-corruption drive.
The executive of the casino operator expects industry-wide gaming revenue to be flat or drop slightly this year, So said in an interview in Macau on Tuesday. He forecast a “high single digit” growth for 2015.
“The prospect of VIP market is gloomy,” So said. “If you ask me now, I’m bearish towards VIP market for the next six months. I don’t know how to read the future beyond that.”
Macau’s casino industry is bracing for its longest losing streak as the Chinese government’s crackdown on extravagance has prompted high-stakes bettors or the so-called VIPs, to stay away from the region. This has dented the earnings of companies from Wynn Macau Ltd. to Melco Crown Entertainment Ltd. and their shares also suffered with SJM falling 41 percent this year, the biggest slump among its peers.
The industry could be further affected by Chinese Xi’s expected visit to Macau next month as part of the 15th anniversary celebration of Macau’s handover to China, Union Gaming Research analyst Grant Govertsen has said.
“The government will probably give a review of the campaign next year” during the annual meetings for the national legislature and top political advisory body, So said. “If the campaign isn’t going to expand further in any sense, things may start to improve. Impact from the campaign is mainly psychological.”
Macau casino revenue, which has grown 2.3 percent in the year to date, may fall 0.6 percent year on year, according to a median estimate of nine analysts surveyed by Bloomberg News. The market may rebound to a 2 percent growth next year, according to a median estimate of 12 analysts surveyed.
The former Portuguese enclave recorded the slowest annual growth in casino revenue in 2009 with a 9.7 percent gain and it hasn’t seen a yearly decline since records started in 2002.
To boost revenue, the company next year will shift more tables to target the so-called premium mass-market gamblers, So said. Five tables have already been converted in October and 15 more will be moved by the end of this year, he said.
Premium-mass gamblers, who bet in cash, provide better margins than high rollers because they don’t require junket operators, who charge casino companies a commission to bring in VIP customers and arrange credit for their gambling trips.
“We have to take these steps to reconfigure our tables until the opening of our new resort in 2017,” So said. “This way we could maintain our market share. Even though it may continue to drop, it will be less severe.”
Hong Kong-listed SJM ranked second in the Macau casino market with a share of 22.6 percent in the third quarter. Sands China Ltd. was No. 1 with a 23.2 percent share, according to Karen Tang, an analyst at Deutsche Bank AG. “If you could stop losing market share or lose at a slower rate, it’s already a win in the current environment,” So said.
SJM owns 20 out of the 35 casinos in Macau, the most among its peers. It’s the last company among the city’s six operators to open a property in the increasingly popular Cotai Strip. Galaxy Entertainment Group Ltd. will be the first to open with a phase two expansion of its main Galaxy Macau resort in the middle of next year.
Galaxy now has the most revenue from high rollers among the city’s casino operators, overtaking SJM, according to Bloomberg Intelligence.
SJM, founded by Macau gambling mogul Stanley Ho, reported this week adjusted earnings before interest, taxes, depreciation and amortization fell 14 percent in the third quarter to HKD1.75 billion (USD225.7 million). Billy Chan, Bloomberg