Fitch Ratings has revised its outlook on SJM Holdings from “negative” to “stable”, with expectations that the company will achieve positive free cash flow (FCF) by 2024. According to Fitch, the positive FCF will enable SJM to expand and contribute to a reduction in its debt balance. By 2026, the agency projects SJM to reach HK$6.6bn in EBITDA.
However, Fitch also cautioned that SJM’s ratings are constrained by high leverage resulting from the impact of the COVID-19 pandemic and significant investment in the Grand Lisboa Palace resort in Macau. Additionally, potential regulatory issues in Macau and beyond, continued struggles in the Chinese economy, and the risk of extended expansion of the Grand Lisboa Palace in a competitive Macau market also restrict SJM’s ratings.
After a challenging end to 2022 that saw the closure of seven casinos in December, SJM rebounded in 2023 as COVID-19 restrictions eased in Macau. The first half of 2023 marked the first positive six-month stretch of EBITDA for SJM since 2019, with total revenue skyrocketing 126.7% to HK$9.36bn compared to the same period in 2022.
In Q3 of 2023, SJM reported a significant increase in net gaming revenue and gross gaming revenue, showcasing the operator’s pandemic recovery. Similarly, Melco Resorts & Entertainment also experienced a revenue jump in Q3, with casino revenue increasing by 346.2% to $812.1m.
Despite China’s economic struggles, Macau’s gambling sector thrived in December, recording a monthly gross income of MOP18.6bn, a 433% year-on-year increase. This strong performance comes as China’s lottery ticket sales decreased by 2.5% in November, with a 13.3% decline in sports lottery sales compared to the previous year.
Overall, Macau’s cumulative gross income for 2023 stands at MOP183.1bn, a 333.8% increase from the previous year. The growth in visitation and gaming revenue in Macau indicates positive prospects for SJM, pushing Fitch to revise its outlook on the company from negative to stable.