Third quarter 2022 results Review: SJM gross gaming revenue decreased by 37.8% to HK $950 million (same as below). Total net income fell 35.4% month-on-month to 1.03 billion yuan (mainly affected by the repeated epidemic, including the suspension of business for some time during the period). VIP gambling revenue, midfield gambling revenue and slot machine gambling revenue decreased by 33.3%, 37.8% and 38.8% respectively, while non-gambling revenue decreased by 11.5% compared with the previous month. EBITDA and its net profit and loss expanded to-9.2 and-1.89 billion yuan respectively. The total daily operating expenditure increased by 7.6% month-on-month to 16.7 million yuan (due to the group's transfer of 10 satellite casinos to proprietary business); but the group continued to strive to control costs, and the daily operating expenses of the original proprietary business and Shanghai Lisboa decreased by 13.7% to 13.2 million yuan from the previous month. The overall market share fell 0.9 percentage points to 17.7% in the third quarter from the previous quarter (2.5% for VIP business and 22.7% for midfield business). Overall performance is in line with expectations.
The performance of "New Lisboa" and other casinos: the gaming revenue of "New Lisboa", other proprietary and satellite casinos decreased by 34.5%, 28.1% and 64.8% to 100 million, 230 million and 150 million yuan, respectively, while their EBITDA was-220 million yuan,-160 million yuan and-280 million yuan, respectively. The group temporarily transferred 10 satellite casinos to other proprietary businesses, and now there are only four satellite casinos left.
Performance of "Upper Lisboa": "Upper Lisboa" currently offers 158 midfield tables, 795 slot machines, 548 "Upper Lisboa" brand and 72 "Karl Lagerfel" brand hotel rooms (the occupancy rates of the two hotels are about 25.3% and 17.0%, respectively) and 16 restaurants. During the period, Lisboa Upper recorded revenue of 120 million yuan (47 million yuan for betting-38% of the "new Lisboa" and 69 million yuan for non-betting). The loss of EBITDA is-230 million yuan. The progress of climbing and the time it takes to reach the break-even point will depend on the recovery of the industry, but the resumption of e-visa applications will help promote the development of the project and the group.
Other key points: on September 14, the Group submitted a bid for betting approval. The Group has about $4.5 billion in cash and a total liquidity of about $9.4 billion (including $2.9 billion and $2 billion of outstanding credit and major shareholder loans) and total liabilities of $22.2 billion. Assuming that there is no income, it is believed that the Group will be able to maintain its operation for about 1.5 years. Market concerns about group liquidity should be alleviated.
Target price of HK $4.00, maintain buy rating: the overall results in the third quarter are in line with expectations; the total liquidity available is about 9.4 billion yuan, which is believed to allay market concerns about the liquidity of the group. Since November 1, e-visa applications for individual and group tours in the mainland have been restarted, which is great good news for the industry and groups.
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 $4.00, which is based on 9.2 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.