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SJM Falls to 8-Month Low After Profit Misses Estimates

Grand Lisboa In Macau
A man walks towards the Casino Lisboa illuminated at night in Macau, China. Competition is intensifying for SJM Holdings Ltd. in Macau’s city-center as operators including Sands China Ltd. and Galaxy Entertainment Group Ltd. lured gamblers with shopping, dining and theatrical shows to their resorts on the Cotai Strip. Photographer: Brent Lewin/Bloomberg

SJM Holdings Ltd., Asia’s largest casino operator by revenue, dropped to the lowest level in almost eight months after posting first-quarter earnings that missed analyst estimates.

SJM fell 2.4 percent to close at HK$20.40 in Hong Kong trading, the lowest level since Sept. 18. The stock has fallen 22 percent this year, compared with the 4.1 percent decline in the city’s Hang Seng Index.

Adjusted earnings before interest, taxes, depreciation and amortization rose 3 percent to HK$2.2 billion ($284 million) in the three months ended March, SJM said in a Hong Kong stock exchange statement yesterday. That compared with the HK$2.28 billion average estimate from six analysts compiled by Bloomberg. The growth pace slowed from 11 percent for the same period last year.

Competition is intensifying for the owner of the Grand Lisboa casino in Macau’s city-center as operators including Sands China Ltd. and Galaxy Entertainment Group Ltd. lured gamblers with shopping, dining and theatrical shows to their resorts on the Cotai Strip, where SJM isn’t scheduled to have a property until 2017. SJM has also lost its No. 1 market share position in Macau to Sands China during the quarter, according to Karen Tang, an analyst at Deutsche Bank AG.

“We expect better growth at SJM in the remaining quarters of the year,” Phoebe Tse, a Hong Kong-based analyst at Barclays Plc, wrote today, as the company is expected to expand a new gambling room to cater for the so-called premium-mass players, who place bigger stakes than mass-market bettors and incur lower costs than VIPs brought in by middlemen.

Barclays has cut its 2014 Ebitda estimates by 3.7 percent after first-quarter earnings were 4 percent below its forecast, Tse said.

‘Premium Mass’ Gamblers

SJM’s performance in the second half should be helped by a move to dedicate more tables to premium-mass gamblers, Tse and Barclays analyst Vineet Sharma said. They bet in cash, unlike the high rollers who gamble with credits provided by middlemen agents, who charge casino operators a commission.

Gaming revenue climbed 5 percent to HK$22.79 billion during the three-month period.

SJM, which controls 20 of the 35 casinos in the world’s largest gambling hub, said its gaming revenue from VIPs, or high-stakes bettors, fell 4 percent last year to HK$14.5 billion, while that from the mass market increased 28 percent to HK$7.9 billion.

Cotai Market

“It is becoming more common to see certain months in which Cotai has 50 percent or more market share in the mass table segment, particularly so in the busier seasons,” Tse and Sharm at Barclays, wrote in a report last month. “We expect the shift of revenue share to Cotai to continue going forward, particularly in the mass segment.”

Barclays favors the Cotai operators, such as Sands China and Galaxy, because of the expected stronger growth this and next year, the analysts said.

Sands China overtook SJM in the first quarter to become a market leader with a 23.2 percent share, comparing to SJM’s 23 percent, Tang of Deutsche Bank wrote in a note this month. It had a 26 percent share in the first quarter last year, SJM said in a statement yesterday.

SJM’s market share for mass table revenue dropped to 25 percent from 28 percent a year ago, while it rose to 31 percent from 29 percent for Sands China, according to Barclays.

Cotai Property

The former casino monopoly in February broke ground on its first resort in Cotai Strip, Asia’s version of the Las Vegas Strip. SJM, the last of the Chinese city’s six casino operators to receive government approval to develop a resort in Cotai, is scheduled to open its HK$30 billion Lisboa Palace in 2017.

Gambling revenue in Macau rose 20 percent to 102.2 billion patacas ($12.8 billion) in the first quarter. The former Portuguese enclave gets more than two-thirds of casino revenue from high rollers.

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