Inside Asian Gaming

INSIDE ASIAN GAMING | March 2014 26 COVER STORY As a consequence the company has become overly reliant, in his view, on cash rebates to lure higher-spending play to its mass-market tables, the prized segment known as“premium-mass,”a strategy that he sees knocking margins around by 12-15% compared with non- rebated premium mass. He expects management will be punching away with changes this year to Grand Lisboa’s mezzanine area involving the addition of more premium-mass tables (and less VIP). It’s also possible they could take back the remaining 80 tables fromthe company’s troubledGreek Mythology satellite on Taipa island, although he wonders whether there is enough space to“usefully”employ them. He notes as another positive the reopening of the company’s directly operated Casino Jai Alai (with 170 new hotel rooms) later this year. A lot could depend on VIP. It’s the heart of SJM’s business, but it continues to weaken market-wide relative to mass. The fourth quarter of 2013 was the 10th in a row in which VIP revenue had fallen as a proportion of the whole. Not surprisingly, the number of mass tables has grown sequentially throughout this period while VIP’s have remained roughly unchanged. In January, a month when SJM once again led all comers in rolling chip volume, VIP revenue market-wide dipped 1% year on year. SJM’s share fell by 0.8%, mainly on poor luck. The sector’s 60.6% of the market was its lowest share ever. “In 2014, we see risk rising with limited new supply, tightening liquidity, and competition from premium mass,” Mr Choudhary wrote on 24th February, two days before SJM released its results for the fourth quarter, in which the company would report a significant increase in EBITDA of 23% for the three months ended 31st December on a 13% increase in gaming revenue to HK$23.7 billion, which was below the market’s +19%. “We believe the outlook for SJM remains positive,” Mr Govertsen responded in a client note, “and especially so at its flagship Grand Lisboa property, which we are currently modeling to grow GGR during 2014 at slightly under our market-wide growth rate.” Mr Tulk is bullish on Macau, forecasting growth of 16.7% versus current consensus of 15%, but he has SJMtrailing themarket by about two percentage points. He expects the company will underperform both in VIP (+11.2% versus +11.5% for the market) and mass tables (+22.5% versus a market-wide +30%). As he states it,“They havemuch lower EBITDAmargins. They have much less control over their operations because half their revenue goes through third-party operations. Their multiple today reflects VIP Rolling Chip Turnover (MOP millions) 1Q13 2Q13 3Q 13 4Q 13 Market Share Jan. ‘14 Sands China 278,177 281,231 288,997 329,963 15.6% 80,995 Galaxy Entertainment 340,374 361,349 378,831 439,492 20.1% 126,623 Wynn Macau 203,923 219,429 220,112 250,519 11.8% 69,840 SJM 487,042 489,348 520,472 589,094 27.7% 158,887 Melco Crown 256,304 259,932 228,171 247,965 13.7% 63,991 MGM 193,303 207,963 209,202 244,375 11.2% 62,669 Figures may not total 100% due to rounding | Source: DICJ, company data It may be good public relations to expound the fact, as SJM does, that it is the only operator with historical roots in Macau and south China. But there is history to back it up. The company views itself as a guardian and promoter of a heritage, and it continues to devote a portion of its considerable resources to ensure the resorts it directly operates serve as repositories of it.