Inside Asian Gaming

98 INSIDE ASIAN GAMING | May 2013 REGIONAL BRIEFS Strong First Quarter for SJM Macau’s largest casino operator posted an 11% increase in pre- tax earnings in the first quarter on a 10% rise in gambling revenue to HK$21.7 billion (US$2.78 billion). Hong Kong-listed SJM Holdings (HK: 880) recorded EBITDA of HK$2.1 billion at its 20 casinos for the three months ended 31st March. The VIP segment turned in a particularly strong showing, up 13% to $15.1 billion in revenue, and growth was steady in the mass market, with revenues up 4.7% to $6.22 billion. Estimating growth market-wide at 7% on a same-store basis (i.e. adjusted for the impact of new supply), SJM is “outpacing the market,” wrote equities analyst Grant Govertsen of Union Gaming Research Macau. Net income rose to HK$1.92 billion (US$247 million) from $1.71 billion in the first quarter of 2012. Union Gaming noted that VIP got a boost from the reclassification of some 28 high-limit public tables at the company’s flagship Grand Lisboa as“VIP”based onmaximumbets that exceeded the regulatory threshold of HK$300,000. The impact of this is not entirely clear, the firm said, in part because the rest of themarket does not appear to be following the same reporting protocol. Future reclassifications could result in VIP revenues appearing to grow faster at SJM as more so- called “premium mass” tables are counted as VIP. Conversely, growth could appear to lessen on the mass side. For the quarter, gaming revenue at Grand Lisboa was up 24% to HK$8.3 billion, resulting in a 12% increase in property EBITDA to $1.22 billion. The company’s other self-promoted operations, Casino Lisboa and Casino Jai Alai, posted $386 million in EBITDA on a 17% increase in combined gaming revenue to $3.3 billion. Pre-tax earnings at the 17 third-party-promoted “satellite” casinos were up 3% to $420 million on a slight decline in gaming revenue (minus-1%) to $10 billion. Galaxy Buying Grand Waldo Macau casino giant Galaxy Entertainment Group is taking full possession of the Grand Waldo casino and hotel in an all-cash transaction valued at HK$3.25 billion (US$419 million). Galaxy is buying the Cotai site and its physical plant, which are located next to the company’s Galaxy Macau flagship resort, from Hong Kong-listed Get Nice Holdings, according to statements issued by both companies . Grand Waldo consists of 320 rooms and around 40 table games and 145 slot machines that are operated as one of four “satellite” casinos under Galaxy’s gaming concession. The property also contains 325,000 square feet of entertainment and other non- gaming space and 650,000 square feet of MICE space. Although Grand Waldo has only a minute share of the market and operated at a HK$131 million loss last year, the acquisition is a significant one for GEG on several levels. Given the Macau government is unlikely to allocate new land to build casinos, it offers longer-term strategic value by boosting Galaxy’s land bank Furthermore, given the lack of new supply coming into the market over the next two years, the purchase offers Galaxy additional capacity for growth in the nearer term. Analyst Grant Govertsen of Union Gaming Research Macau said, “The best way to think about the acquisition is in terms of what its gaming assets could generate if they performed at least in line with Galaxy Entertainment’s existing wholly owned table games (which could require redeployment elsewhere if necessary). ... Table games are a finite and scarce resource (and therefore extremely valuable) in the context of the Macau government’s market-wide cap on the number of table games.” Hong Kong-listed Galaxy is planning a phased expansion of Galaxy Macau that will triple the size of the resort when it is completed over the next several years. The first addition, pegged at a cost of HK$19.6 billion, is slated to open in mid-2015. Construction on two subsequent phases totaling a projected capital investment of HK$50 billion-$60 billion could begin the end of this year, the company has said. Under current plans, phases 3 and 4, as these are called, will add 5,500 hotel rooms and up to 1,000 table games and 3,000 slot machines to the resort complex. The cash-rich company’s reserves hold it in good stead to finance its expansion plans. Galaxy entered the new year with HK$15.6 billion of cash on hand after net income more than doubled to $7.4 billion in 2012 on a 38% increase in revenues to $56.7 billion. The bulk of that, $33 billion, was generated by Galaxy Macau. Galaxy was approved by the Macau government to add 50 table games this year between GalaxyMacau and the company’s StarWorld casino hotel on the Macau peninsula. Deputy Chairman Francis Lui has said one-third of the tables will be allocated to VIP rooms and two-thirds to the public floors. Grand Lisboa Rendering of Galaxy Macau phase 2