SJM Holdings Earnings: Nice Turnaround at Group Level EBITDA, but GLP Ramp-up Still Needs Patience

SJM Holdings 00880 returned to positive adjusted EBITDA for the first time since the start of 2022. We’re also encouraged by management’s comment that the company’s month-to-date performance has been decent, with mass gaming volume reaching 110% of 2019 levels, or 95% on a comparable basis (excluding Grand Lisboa Palace). We think these positive data points are broadly in line with its Macao peers, confirming a solid recovery in Macao gaming demand. However, the ramp-up of new property, GLP, is still lagging, having gained less than 1% market share in the quarter with an adjusted EBITDA loss of HKD 230 million. We think a continued ramp-up of both gaming and nongaming facilities, coinciding with improving tourism traffic to Macao, will accelerate sales growth at GLP quarter over quarter, and lead to a turnaround in adjusted EBITDA in the second half. We maintain our fair value estimate of HKD 5.60 per share, after a minor tweak of our forecast.

We continue to like the company’s turnaround story with improving profitability, as visitors continue to return to Macao after an extended period of absence. We think SJM shares are undervalued as of market close on May 15, currently trading at about 6 times Refinitiv’s consensus 2024 EBITDA of HKD 4.6 billion, and sharply below the 11 times for Macao gaming sector. We think a possible turnaround of GLP’s adjusted EBITDA in the second half will drive an uptick in share prices.

GLP operated 600 hotel rooms in first quarter, and it further launched Karl Lagerfeld and Palazzo Versace Hotels in May, along with additional GLP hotel rooms. Its hotel capacity now amounts to 1,350 rooms. With the continued ramp-up of hotel capacity, SJM sees decent month-over-month sales growth at GLP. Upon a full ramp-up of all the 1,892 rooms, GLP’s gaming revenue share will likely rise to 2.5%, up from about 1% currently, which will allow the property’s adjusted EBITDA to reach its breakeven level, according to management.