Inside Asian Gaming

March 2014 | INSIDE ASIAN GAMING 25 COVER STORY consorts, Angela Leong, who is an executive director of SJM and a major shareholder. However, only about half her parcel actually has been gazetted (officially approved, that is) for commercial purposes, and this may be complicating the negotiations to unite them, which no doubt have involved the government. The half that has been gazetted is not zoned for gaming. Mr Tam, moreover, has said there will be no more approvals for large-scale casino development. Grant Govertsen of Union Gaming Research Macau expects the site will add a “significant amount of non-gaming amenities” that could include “many thousands of hotel rooms, entertainment, etc.” Mr Choudhary, writing on the day of the groundbreaking, said it could amount to another HK$30 billion in capex, which, as he notes, certainly would put pressure on returns in the absence of a gaming element. The cap anticipates around 1,900 new tables in the market through 2023, or about 325 per concessionaire. Mr Tulk is not alone in believing this will be exceeded well before that date. He projects an average closer to 400-425, augmented by “bonus allocations” the government will conjure as a reward for investments in non-gaming. Mr Choudhary uses 300 tables at Lisboa Palace to value an additional HK$4.40 per SJM share (HKSE: 0880) into his forward price target. Mr Tulk values in $5.80. It works out to only 20.9% of his target price, way less than the impact he assigns the Galaxy Macau Phase 2 and Studio City openings, which are much nearer on the horizon. He’s skeptical of the 2017 opening date, for one thing. “I think it’s quite reasonable that it might not open until 2018,” he says. “That’s quite a long ways off.” He’s not impressed with the location either, noting that it lies outside the radius of the city’s Light Rail as currently planned— although it’s possible that could change—and rather distant, in his view, both from Wynn Palace, which will be the closest resort, and the main Cotai action. “It’s not that easy to get to,” he says. Investors aremore concerned near- tomid-termon the prospects of SJM’s existing operations, capacity constraints having emerged as perhaps the biggest issue, particularly as Cotai continues to ramp up for Melco Crown and Sands. SJM enjoyed a 25% surge in share price toward the end of 2013—impressive but well below the competition, which doubled on average. After a year in which it led the market in gaming revenue its share price entered 2014 trailing the median by triple digits, the multiples it commanded both in terms of price/earnings and enterprise value/EBITDA the lowest of its peers. “A lack of space at core properties and an insufficient number of hotel rooms make it hard for SJM to compete for new business,” Mr Tulk wrote in a December note to investors. It doesn’t get any more aspirational for China’s nouveau riche millions than Versace, and their participation as a hotel brand—a 270-room “Palazzo Versace” will be one of two six-star hotels at the resort—is part of what stands the project apart from the rest of the lavish competition that will already be up and running when Lisboa Palace opens in 2017.