MACAU

Siblings squabble over SJM

SJM Holdings was once the dominant force in gaming in Macau, holding the monopoly for almost four decades, though now its star is fading and it has become the subject of infighting for control as its former leader, Stanley Ho, ails.

In its latest results, the company saw its market share slip to just 14.9 percent from 16.1 percent a year earlier, continuing the slide it has suffered since the market was opened to competition in 2002 and newer, world-class IRs began to open.

Analysts are not optimistic about its nearterm prospects and don’t see any catalysts for a turnaround until it opens its HK$36 billion ($4.5 billion) Grand Lisboa Palace on Cotai, becoming the last of the six operators to come to the strip. That resort has been delayed and management now says it expects construction to be completed in the first half of this year, with operations to begin as soon as it receives government operating permits.

For the fourth quarter of 2018, the company’s results missed analysts’ expectations. EBITDA came in at HK$846 million, below the market consensus for an 11.6 percent drop.

“Given the ongoing peninsula vs. Cotai dynamic, with the peninsula accounting for virtually all of the softness in Macau, and with SJM still peninsula-centric through at least the end of 2019, our outlook on the company remains cautious,” Union Gaming analyst Grant Govertsen said in a note. “This is also reinforced by our view that Grand Lisboa Palace on Cotai will likely take longer to ramp than the Cotai peer group.”

Sociedade de Turismo e Diversões de Macau was founded in 1962 by Stanley Ho, who was awarded the monopoly license that same year. The business became a license to print money, with Ho becoming known as the territory’s king of gambling.

However, once the market was opened up, the entrance of Las Vegas Sand’s The Venetian and other resorts brought a level of offering that had not been seen in Macau before.

The company still has the largest number of casinos by a long stretch at 22, with Galaxy Entertainment Group being the second-largest in terms of numbers, with just six properties. Though most of SJM’s casinos are small and cater to the grind mass market, clustered on peninsula Macau or on Taipa island.

As the company struggles to regain its mojo, it has found itself at the center of a battle for control between Ho’s family members. The 97-year old patriarch, who has had four wives and multiple children, was recently admitted to hospital amidst reports of failing health.

His daughter from his second marriage, Pansy Ho, in January effectively carried out a shareholder coup. Shun Tak Holdings, which she heads, teamed up with the influential Fok Foundation and her sister Daisy Ho to form a voting block and propose board members to STDM. Prior to the alliance, Angela Leong, Stanley’s fourth wife, was the controlling shareholder.

The Pansy Ho-led block now jointly controls 53 percent of STDM, according to the exchange filing. STDM, in turn, holds about 54 percent of SJM.

Analysts say the move may lead to a long overdue shakeup of the board. Last April, the company shuffled management appointing Daisy Ho as chairperson and executive director and Timothy Fok and Angela Leong both as Co-Chairmen.

Bernstein Research noted at the time the overhaul was a missed opportunity to bring in a “top notch” manager.

Daisy Ho has commented that she believes the shareholder alliance will help the company with its concession renewal. Its license, along with sub-concessionaire MGM China, will be the first to expire in March next year.

MGM China

MGM China (2282:HK) is operating two casinos, with its MGM Cotai IR opening in February 2018. The IR, with its jewellry box design, is already contributing to group results. The HK$27 billion IR features 1,400 hotel rooms and suites, meeting space, high end spa, retail offerings and food and beverage outlets as well as the first international Mansion at MGM for the ultimate luxury experience.

The company, whose Macau license also expires next March, is pushing hard for an opportunity in Japan.

James Murren, chairman and CEO of MGM Resorts International, told investors on a recent earnings call that his company is “focusing our energies” on its Osaka IR bid, and that he feels optimistic about MGM’s chances for success, in spite of the highly competitive environment.

“We are focusing our energies there. We have been developing consortium partners, exciting programming, getting ready for RFP submission,” Murren explained.

Melco Resorts & Entertainment

Melco Resorts & Entertainment (6883.HK) has three casinos and the Mocha Clubs. The company operates the City of Dreams and Studio City in Macau and the City of Dreams Manila.

Studio City ceased VIP gaming operations from January this year, though City of Dreams has added a further VIP promoter. Tak Chun Group opened a new VIP club on the second floor of the property, including six rooms and 14 gaming tables over Chinese New Year. The club will also feature “in-house tea masters” to prepare premium Chinese tea for its guests.

Studio City is now ready to proceed with the second phase of its development, which will feature more non-gaming entertainment, including a giant water park.

Melco CEO Lawrence Ho said the plans are ready and the company is just waiting for government approval to proceed. The water park will be one of the biggest in Asia, he said.

Ho was speaking at the preview of two new non-gaming attractions at Melco’s Macau resorts.

Elekron, an electric car stunt show is making its debut at Studio City, while a Ferrari exhibition featuring GBP250 million-worth ($326 million) of luxury cars will be hosted at City of Dreams.

Wynn Macau

Wynn Macau (1128:HK) operates two resorts, with its $4 billion Wynn Palace opening in 2016. The company’s original property is on the Macau Peninsula. The Wynn Palace has 1,700 hotel rooms and 90 percent of the resort will be non-gaming. The resort has two further plots of land available for development and the company is considering adding more non-gaming attractions.

Morningstar notes that the company faces short-term headwinds due to construction at its properties, but is well positioned for future growth.

While there will be pressure on earnings on the near term, there is long-term growth potential for the group – namely due to the new premium mass area in the peninsula launching at the end of this year, along with two hotel towers with over 1,200 rooms in Cotai, which begins construction in 2020, the research firm said in a note.

Sands China

Sands China (1928:HK) has five properties in Macau. The $3 billion The Parisian opened in September 2016 and is now a key driver of group results. It features a scale replica of the Eiffel Tower, nearly 13,000 hotel rooms, two million square feet of retail-mall offerings and two million square feet of MICE capacity. The company also has the biggest room inventory in Macau, making it best positioned to benefit from expansion of the mass market.

The group hit the headlines in February after the fatal stabbing of a 41-year-old man from mainland China in the Conrad Hotel, part of Sands China’s Sand’s Cotai IR.

According to local media reports, the man was found dead in his bed. He was said to be an active gambler. No further details were available, TDM said.

Murder cases are rare in Macau and any violence is usually linked to triad-related infighting.

Galaxy Entertainment Group

Galaxy Entertainment Group (27.HK) has three main properties and runs three City Club casinos inside hotels. The company’s Galaxy Macau Phase 2 and Broadway at Galaxy Macau opened on May 27, 2015, almost doubling the capacity of the resort.

The group was named Casino Operator of the Year Australia/Asia at the International Gaming Awards in London in February, the fifth time that GEG has won.

In addition, Galaxy Macau won the Integrated Resort of the Year award for the third year running. It also marks the eighth consecutive year that GEG has been honored by the IGA.

“GEG is now a world-renowned brand in the resort industry,” Vice Chairman Francis Lui said. “We will continue to deliver quality product offerings and memorable customer experiences to our guests across our properties in Macau. Additionally, we are committed to promoting our brand around the world through our expansion plans, such as Hengqin and Japan.”

SJM Holdings

SJM Holdings (880:HK) has 22 casinos in Macau, though the former monopoly has been losing market share to new IRs on Cotai. The opening of its $4.6 billion Lisboa Palace resort is expected in the second half of this year and the company said it’s confident it can provide a differentiated offering from its competitors.

“We will have new hotels and other services that can attract more tourists, also renowned restaurants. I believe it will give a good image to Macau. We can’t repeat what already exists in Cotai. We will be the last and we will try to bring new offerings,” executive director Angela Leong said.

SJM’s concession to operate is one of the first to expire in March 2020. Recently, Chairman Ambrose So said he was looking forward to the continuation of the license.

Amax sells stake in defunct Greek Mythology

Hong Kong-listed Amax International Holdings has disposed of its 24.8 percent stake in the defunct Greek Mythology casino for nominal net proceeds of HK$30,000, which will be used as working capital.

Amax said it expects to make a full impairment loss on the disposal, which is valued around HK$353.7 million (US$45 million) as per the unaudited interim financial statements as at 30 September 2018. The stake was bought by Fu Po International Limited.

Greek Mythology casino, located inside the Beijing Imperial Palace Hotel, has been plagued with issues dating back to 2015, including an ongoing ownership dispute, labor law violations, and a non-renewal of the hotel license, leading to the hotel’s closure.

HKZM bridge to drive VIP/MICE traffic

Gaming scholar Davis Fong Ka Chio expects the Hong Kong Zhuhai Macau Bridge to attract VIP players and MICE sector visitors as it ramps up, local media reports.

The HZMB officially opened for traffic on October 24, 2018 and has been attributed to a higher visitor rate in the first few months of operation. Fong said while the first stages will boost same-day and mass market visitors, more VIP and meetings, incentives, conferences and exhibitions (MICE) sector visitors are expected to come across the bridge in later stages.

“The first phase of the impact will basically be the lower mass market and one-day trippers.

The second wave I strongly believe is the VIP. Why? Because many people told me it takes only one hour from Hong Kong Central to Macau Peninsula… More and more VIP will choose to drive from Hong Kong to Macau,” said Fong.

Regarding the MICE sector, Fong said the improved connectivity between Macau and the Hong Kong International Airport is the most important element to improve MICE market visitation.