Second quarter 2022 results Review: gross gaming revenue from SJM decreased by 39.8% month-on-month to HK $1.53 billion (same as below). Total net income fell 37.3% month-on-month to 1.59 billion yuan (mainly affected by repeated epidemics). VIP gambling revenue, midfield gambling revenue and slot machine gambling revenue decreased by 87.6%, 33.1% and 21.5% respectively, while non-gambling revenue decreased by 30.9% month-on-month. EBITDA and net profit and loss increased to-7.0 and-1.48 billion respectively; the Group continued to strive to control costs (daily operating expenses decreased from 16 million yuan in the previous quarter to 15.3 million yuan in June. The overall market share rose 3.8 percentage points to 18.5% in the first quarter from the previous quarter (2.2% for VIP business and 24.6% for midfield business). Overall performance is in line with expectations. The term of the existing licence has been extended to December 31 this year, and the fee is 46 million yuan.
The performance of "New Lisboa" and other casinos: the gaming revenue of "New Lisboa", other self-owned and satellite casinos decreased by 72.1%, 24.3% and 46.1% to 150 million yuan, 320 million yuan and 980 million yuan respectively, while their EBITDA was-250 million yuan,-93 million yuan and-27 million yuan respectively. Ten satellite casinos have signed a new contract until December 31 this year, 4 satellite casinos to maintain the existing business model.
The performance of "Upper Lisboa": "Upper Lisboa" currently offers 158 midfield gaming tables, 738 slot machines, 504 "Upper Lisboa" brand and 72 "Karl Lagerfel" brand hotel rooms (the occupancy rates of the two hotels are about 28.5% and 31%, respectively) and 16 restaurants. During the period, "Upper Lisboa" recorded revenue of 150 million yuan (68 million yuan for betting-34% of the "new Lisboa" and 72 million yuan for non-betting). The loss of EBITDA is-270 million yuan.
Liquidity is expected to rise to about HK $11 billion: in the first half of the year, the Group held about $2.4 billion in cash and total liabilities of $23.8 billion. On August 3, the controlling shareholder (STDM) agreed to provide the group with an unsecured term loan of 2 billion yuan with a fixed term of 6 years from the date of withdrawal at an annual interest rate of 4%. At the same time, the Group announced that it will carry out four rights issues and one rights issue at 2.08 yuan per share, which is expected to raise up to 3 billion yuan.
With 3.6 billion yuan of standby credit, the working capital of the group is expected to increase to about 11 billion yuan. The purpose of this loan and rights issue is to enhance the Group's balance sheet and capital liquidity, and to prepare for the tender for the award of betting. With a working capital of $11 billion and assuming zero income, it is believed that the Group will be able to maintain its operation for about 1.5-2 years. Market concerns about group liquidity should be alleviated.
Target price of HK $4.07, maintain buy rating: overall results in the second quarter are in line with expectations. Due to repeated outbreaks and travel restrictions, it is believed that the industry will be negatively affected for the rest of 2022. In the long run, the squeeze demand of Chinese tourists is strong, Macao wants to develop into an international tourism center, and we are full of confidence in the future of Macao. The launch of "Lisboa Shanghai" will greatly enhance the group's long-term growth and competitive advantage, and we continue to be optimistic about the future development of SJM. Maintain the buy rating. The target price is HK $4.07, which is based on 9.3 times the 2024 EBITDA valuation of the New Portugal Stadium, other self-promoted casinos and satellite casinos and other businesses.
Important risks: we believe that the following are some of the more important risks: 1) economic growth is worse than expected, 2) policy risks, 3) the impact of the epidemic is greater than expected, 4) the performance of Lisboa Upper is lower than expected, and 5) liquidity problems.