SJM Holdings Earnings: Profit Growth Accelerates, With Nice Turnaround for GLP’s Adjusted EBITDA

Although SJM’s 00880 June-quarter adjusted EBITDA of HKD 430 million was slightly behind Bloomberg consensus, we think performance is encouraging, reflecting robust profit improvement, with revenue and adjusted EBITDA returning to 64% and 60% of 2019 levels respectively, up from 46% and 3% in the prior quarter. Management also sees strong momentum into the third quarter, with month-over-month gross revenue rising 10% and adjusted EBITDA up 48% in July. More importantly, the ramp-up of new property GLP is gaining speed, with 2% market share in July, up from less than 1% in the first quarter. The property also delivered positive adjusted EBITDA in July, from a loss in the first quarter. We think a continued ramp-up of both gaming and nongaming facilities, coinciding with improving tourism traffic to Macao, will further accelerate SJM’s sales growth.

We raise our fair value estimate to HKD 5.80 from HKD 5.60, after lifting our industry gross gaming revenue, or GGR, estimate to MOP 181 billion, or 62% of the 2019 level, from 50% in our previous forecast, to reflect a more upbeat 2023 outlook. Accordingly, we raise our 2023 revenue and adjusted EBITDA forecasts for SJM by 7% and 38%, to HKD 22,231 million and HKD 1,956 million, respectively. Our tweaks to long-term GGR and profit forecasts are minor. We continue to like SJM’s turnaround story, with improving profitability. We think SJM shares are undervalued as of market close on Aug. 21, trading at 6 times Refinitiv’s consensus 2024 EBITDA of HKD 4,535 million, and well below the 10 times for Macao’s gaming sector.

GLP launched Karl Lagerfeld and Palazzo Versace Hotels in the second quarter, along with additional GLP hotel rooms. It is now running at about 86% of hotel capacity, pending the hiring of additional staff. Upon a full ramp-up of all 1,892 rooms by year-end, management expects to get 3.0%-3.5% GGR share and targets a long-term share of 5%-6%, which is decent, given the competition among casino operators.