Macau concessionaires are facing varying degrees of liquidity concerns. But the worst off of the six appears to be SJM Holdings.
In a recent note to clients, JPMorgan analysts DS Kim, Amanda Cheng, and Livy Lyu write that SJM may only have enough capital to survive another six months, as the coronavirus pandemic continues weighing heavily on Macau operators.
SJM’s liquidity is somewhat worrying as its loan re-financing effort has stalled pending government approval, hence it’d have to seek external funding in our view,” said the analysts. “Plus, note SJM’s [operating expenses] are likely to rise from 2H22 amid the likely closure of some satellite casinos, as we believe SJM will have to bring their gaming staffs on its own payroll.”
Increasing expenses against the backdrop of still-restricted travel to the world’s largest casino center could further restrain the Grand Lisboa Palace operator’s liquidity position, according to JPMorgan.
SJM Has Short Liquidity Runway
Various research firms recently highlighted the cash woes of Macau operators, and while the estimates differ, the consensus is SJM is the worst off of the six, possessing enough capital to survive only a matter of months, based on current burn rates.
“From a financial standpoint, our analysis suggests SJM Holdings has only about six months of liquidity runway, which is by far the shortest (versus 1.5 years to 30-plus years for peers) and makes us uncomfortable,” said the JPMorgan analysts.
In addition to still-restricted travel to Macau, SJM is further crimped by the shuttering of several satellite casinos. Plus, Fitch Ratings recently lowered its credit rating on SJM to “BB” from “BB+,” meaning that if the gaming company opts to issue debt to shore up its cash position, it will have to pay higher interest rates to investors. The recently opened Grand Lisboa Palace could also take time to gain momentum, further mudding SJM’s outlook.
“The property may take a long while to ramp-up and achieve a critical mass of patrons for breakeven,” notes the JPMorgan analyst team.
Split Outlook for Macau Concessionaires
JPMorgan is forecasting near-term profitability for Galaxy Entertainment Group, Melco Resorts & Entertainment (NASDAQ:MLCO), and Sands China, adding that MGM China, SJM, and Wynn Macau are looking at losses.
The brokerage firm prefers Sands China — the Macau arm of Las Vegas Sands (NYSE:LVS) — among Macau equities.
“While it’s tempting to throw in the towel, given near-zero visibility on China’s re-opening policy, we feel it may actually be difficult for these stocks to further disappoint investors here, given the (worst) level of investor apathy, sentiment, and positioning, as well as current valuation,” write the analysts.
They add the near-term outlook favors operators that can wait for China to reverse course on its zero tolerance policy on COVID-19.
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