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Fitch improves SJM Holdings outlook to “stable” amid Macau success

| By Kyle Goldsmith
Fitch Ratings has altered its outlook on SJM Holdings from “negative” to “stable”, expecting the company to turn free cash flow (FCF) positive in 2024.
Galaxy Macau 2023

The positive FCF should help SJM to expand, while also “driving a reduction in debt balance”. Fitch is projecting SJM to reach HK$6.6bn (£664.5m/€770.9m/US$845.3m) in EBITDA by 2026. The agency points to the continued growth of Macau in terms of visitation and gaming revenue – both of which are reasons to be positive for SJM.

Fitch warned SJM’s ratings were limited by the “high leverage” caused by the debt accumulated from the impacts of the Covid-19 pandemic, as well as the heavy investment into the integrated Grand Lisboa Palace resort in Macau.

SJM’s ratings were also restricted due to potential regulatory issues in Macau and beyond. It also cited further struggles in the Chinese economy and the risk caused by the extended expansion of the Grand Lisboa Palace in a competitive Macau market.

2023: a much-needed positive year for SJM

After a disappointing end to 2022 in which SJM closed seven casinos in December, the operator hit back with a strong 2023 as Covid-19 restrictions finally eased in Macau.

H1 2023 saw SJM post its first six-month stretch of positive EBITDA since 2019. Total revenue for the first six months of 2023 also rocketed 126.7% to HK$9.36bn compared to H1 2022.

That pandemic recovery continued in Q3, with SJM reporting a 492.9% increase in net gaming revenue, accumulating HK$5.41bn. Gross gaming revenue also hiked 502% to HK$5.73bn.

SJM was not the only operator to feel the benefit of pandemic restrictions relaxing. Melco Resorts & Entertainment reported a revenue jump of 320.6% to $1.02bn in Q3. Casino revenue, meanwhile, increased 346.2% to $812.1m.

Macau flourishing despite China’s struggles

Macau’s gambling sector experienced another excellent month in December, reaching a monthly gross income of MOP18.6bn (£1.8bn/€2.1bn/$2.3bn). That is a 433% year-on-year increase.

This strong showing was in spite of China, which holds sovereignty over Macau, continuing to underperform. Lottery ticket sales in China for November decreased 2.5% year-on-year, while sports lottery sales were also down 13.3% from the same month last year.

Meanwhile, gross gambling income in Macau in December was 15.7% higher than the MOP16bn recorded in the region in November.

Macau’s cumulative gross income for 2023 now stands at MOP183.1bn, 333.8% higher than the MOP42.2bn accumulated in the entirety of 2022.

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