Fitch raises SJM forecast, EBITDA could double Bashny.Net

Fitch Ratings Inc forecasts that SJM Holdings Ltd's pre-interest, tax, depreciation and amortization (EBITDA) profit will reach HKD3.6 billion (US$461.1 million) this year, up from an expected HKD1.7 billion in 2023.
In 2025 and 2026, Macau casino operator EBITDA is expected to rise to HK$ 5.2 billion and HK$ 6.6 billion, respectively, while EBITDA leverage will fall to 5.3 times in 2025 and 3.7 times in 2026, the rating agency said. This is also true of the slotor casino.



In its report on Thursday, Fitch said it had revised its outlook for SJM Holdings’ long-term foreign currency default rating to “stable” from “negative” and confirmed the company’s rating at “BB-.”
The stable outlook "reflects a steady recovery" in visitor numbers and gambling revenue in Macau "despite the economic slowdown in China," the agency said.
SJM Holdings, incorporated in Hong Kong, is the holding company of SJM Resorts Ltd, one of the six casino concessionaires in Macau. The group operates 13 casinos in Macau, including four self-promoted casinos and nine satellite establishments. The newest property of the company is the Grand Lisboa Palace in Kotai.
Fitch expects SJM Holdings’ free cash flow to be positive in 2024 and “to increase further in 2025 and 2026.” This, in turn, will lead to "a reduction in the balance of debt from HK$29 billion at the end of September 2023 to HK$26 billion at the end of 2025 and HK$23 billion at the end of 2026," write Fitch analysts Samuel Hui, Rebecca Tang and Kalai Pillay.
The ratings of SJM Holdings are being held back by high levels of leverage due to the debt accumulated to expand Grand Lisboa Palace and the Covid-19 pandemic.
The recovery of Macau’s gambling and tourism industries “together with the continued expansion of Grand Lisboa Palace is likely to improve SJM Holdings’ leverage performance to the ‘BB-’ threshold in the coming years,” the rating agency said.
Fitch noted that the Grand Lisboa Palace facility "continues to build momentum, although progress has been slower than expected."



In the group's other self-promoted casinos, the agency noted a "strong recovery."
However, the group's business continues to "suffer from excess costs" associated with its casino companions. SJM Holdings had to bear the excess costs associated with laying off employees after the closure of five satellite casinos at the end of 2022, worth HK$488 million during the first nine months of 2023.