SJM Earnings: Solid Recovery Continues, but GLP’s Ramp-Up Slightly Lagged Expectations

SJM’s third-quarter results were broadly in line, reflecting continued profit improvement, with revenue and adjusted EBITDA returning to 71% and 60% of 2019 levels respectively, up from 64% and 43% in the prior quarter. Nevertheless, the ramp-up of the new property Grand Lisboa Palace, or GLP, is still lagging market expectations. With some of its Macao peers adding a significant number of hotel rooms and nongaming facilities, we believe competition will likely rise and SJM may need to make a greater effort to boost its revenue share. We maintain our 2023 earnings forecast but lower our 2024-25 adjusted EBITDA by 7%-15% to factor in a 1- to 2-percentage-point cut in adjusted EBITDA margin amid higher reinvestment and promotional expense assumptions. Our long-term earnings forecasts are unchanged, and our fair value estimate of HKD 5.80 is intact. We continue to like SJM’s turnaround story with improving profitability, as visitors continue to return to Macao after an extended period of absence.