SJM Holdings recently unveiled its 1Q24 financial report, displaying promising revenue and EBITDA improvements, albeit with concerns hovering over the sluggish performance of its Cotai integrated resort, Grand Lisboa Palace (GLP). Analysts express skepticism regarding GLP’s ability to secure its targeted market share amidst a competitive landscape, prompting revisions in earnings estimates.
Financial Performance Overview:
SJM Holdings’ 1Q24 financials revealed commendable revenue and EBITDA advancements, aligning closely with market expectations. However, the lingering apprehension stems from the underwhelming performance of its flagship GLP project. Despite the company’s efforts, GLP’s market share remains below projections, casting doubts on its short-term growth trajectory.
Grand Lisboa Palace’s Market Challenges:
Analysts express reservations regarding GLP’s slow ramp-up phase, citing its tepid market share of 2.0% in Q1. Vitaly Umansky from Seaport Research underscores concerns about GLP’s subdued performance amidst Macau’s robust recovery. The slow pace of ramp-up raises doubts about the project’s long-term return on investment (ROI) and underscores challenges in capturing market share.
Factors Impeding GLP’s Growth:
SJM management highlighted several obstacles during the analyst call, notably the inadequacy of its sales force in the premium mass segment. With only 113 sales staff onboard, the company falls short of its target of 200, hindered by the fiercely competitive market for such positions. The sluggish build-out of marketing and service capabilities for premium mass further delays GLP’s growth trajectory.
Projected Costs and ROI Concerns:
Analysts anticipate a surge in costs and player reinvestment at GLP as SJM endeavors to bolster its premium mass capabilities. However, the slow pace of ramp-up coupled with high operating costs raises concerns about the project’s long-term ROI. The company faces the challenge of balancing investment in growth initiatives with sustainable profitability.
Impact on Dividend Policy:
SJM’s satellite business continues to grapple with profitability challenges stemming from excess carrying costs and capital expenditure requirements. Consequently, SJM confirmed that dividends will not resume until after 2025, reflecting the need to prioritize financial stability and operational efficiency over short-term shareholder returns.
SJM Holdings’ 1Q24 financial results underscore a mixed performance, with revenue and EBITDA improvements overshadowed by concerns surrounding the slow ramp-up of Grand Lisboa Palace. Analysts remain cautious about GLP’s ability to achieve its targeted market share amidst intensifying competition in the Macau market. Addressing the challenges posed by GLP’s sluggish growth trajectory will be crucial for SJM to sustain its position and unlock long-term value for shareholders.