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SJM Falls as Profit Lags Estimates on Competition

SJM Holdings Ltd. fell the most in three weeks as Asia’s biggest casino company by revenue posted third-quarter earnings that missed analyst estimates on rising competition in Macau.

SJM fell as much as 5.1 percent to HK$24.10, headed for the biggest decline since Oct. 22, before trading at HK$24.20 at 11:04 a.m. local time. The company yesterday reported adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda, of HK$2.04 billion for the third quarter, missing an average estimate of HK$2.11 billion from 10 analysts compiled by Bloomberg.

Competitors including Sands China Ltd. and Galaxy Entertainment Group Ltd. have added stores and hotel rooms in Macau’s popular Cotai area, the Asian equivalent of the Las Vegas strip. SJM, founded by Hong Kong tycoon Stanley Ho, doesn’t have a Cotai casino and earnings at the Grand Lisboa, its largest on Macau’s peninsula, dropped during the quarter.

“The weakest link was Grand Lisboa,” Philip Tulk, a Hong Kong-based analyst at Standard Chartered Bank said by phone today. “There were some disruptions at Grand Lisboa in the third quarter as some tables were taken away due to a renovation.”

Adjusted Ebitda at Grand Lisboa fell 7.1 percent to to HK$1.1 billion. The company’s net income climbed 10 percent to HK$1.83 billion during the third quarter from a year earlier, while gaming revenue rose 11 percent to HK$21.1 billion. The renovations were completed before China’s Golden Week in October and the company had a very strong October performance, Tulk said.

Market Share

The operator said in September that it will spend HK$25 billion to build its first Cotai resort that features as many as 700 gambling tables, and a luxury hotel in partnership with Italian fashion house Gianni Versace SpA.

“Constrained by capacity and product competitiveness, SJM’s growth may not be as strong as that of peers for the next three years,” said DS Kim, a Hong Kong-based analyst at BNP Paribas in a research note ahead of the results.

SJM runs 20 out of the 35 casinos in Macau, the only place where they’re legal in China. It accounted for 24.3 percent of the city’s casino gambling market in the third quarter, compared with 26.1 percent a year ago.

The former Portuguese colony’s local government ended Ho’s four-decade monopoly in 2002 and allowed six companies including Las Vegas Sands Corp., Wynn Resorts Ltd., and MGM Resorts International to build resorts, attracting more gamblers from the mainland.

SJM’s gambling revenue from VIPs, or high rollers, rose 8.8 percent in the third quarter, while mass market revenue climbed 18.2 percent, it said.

Gambling revenue in the former Portuguese enclave increased 18 percent to 297.1 billion patacas in the first 10 months of this year, close to the $38 billion revenue raked in last year.

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