The results were slightly lower than expected, mainly due to the opening costs of the Versace Hotel. On the revenue side, 1Q24 achieved net revenue of HK$6.92 billion (basically in line with Bloomberg's agreed estimate of HK$6.85 billion), recovering to 68.2% of 1Q19. Net gaming/non-gaming revenue of HK$6.46/460 million, respectively, recovered to 76.3%/250.5% in the same period in 2019. On the profit side, 1Q24's adjusted EBITDA was HK$860 million, recovering to 80.4% of the same period in '19, slightly lower than Bloomberg's agreed estimate of HK$910,000. The main reason was the grand opening of the company's Versace Hotel in March '24, which resulted in operating expenses of HK$58 million. The company included this in operating expenses, which had a negative impact on the adjusted EBITDA. If this one-time impact is excluded, the results are in line with expectations.
One SJM's strategy has been effective, and the recovery of earnings has been accelerated. 1Q24 achieved total gross revenue of HK$6.89 billion, recovering to 66.2% of 1Q19; of these, VIP/midfielder (including slot machines) revenue was HK$6.5/6.25 billion, respectively, recovering to 16.4%/96.4% in the same period in '19 (lower than 22.3 pct/13.9 pct for the industry, respectively). The company's One SJM strategy of “setting up a platform to manage all properties” has gradually taken effect. The mid-term profit of the 1Q24 company's own properties has recovered to 134% before the pandemic, and the degree of recovery is significantly higher than 115% in 4Q23. During May 1st Golden Week, despite being affected by bad weather, the company's midfield bet amount, including Lisboa, was 162% of the same period in '19, and the midfield bet amount excluding Lisboa reached about 120% for the same period in '19.
The market share target in Upper Lisboa remains unchanged at 5%. Lisboa's market share in 1Q24 was 2.0%, up 0.3 pct from month to month. Its market share increased further to 2.2% in April '24. Looking ahead, the company believes that its market share target is still 5%, and will further increase its market share mainly through the following methods: 1) The company is applying to the Macau government to build a pedestrian bridge to connect to Lisboa East Station (light rail station) to improve the ease of travel in upper Lisboa; 2) It is expected to add more than 10 restaurants in 24-25; 3) It is expected to open a new concert venue at the end of '24 or the beginning of '25; 4) The retail opening rate is expected to reach over 90% by the end of '24; 5) Currently, there are about 130 marketers. Expected The number rose to 200 at the end of '24.
The average daily operating expenses of the 1Q24 company were approximately HK$20.4 million, up 5.5% from the previous month. The main factors were: 1) affected by the one-time opening costs of the Versace Hotel; 2) 20-30 new marketers were added in 1Q24. The average daily operating cost of a single property in Shanghai Lisboa was HK$6.7 million, an increase of 2.1% over the previous month, and the cost was well controlled. The company expects that when Lisboa reaches its target market share, the average daily operating expenses will be close to HK$8 million.
Profit forecast and investment rating: We raised our 2024-2026 net income forecast of HK$291.4/306.8/320.4; raised the adjusted property EBITDA forecast by HK$40.5/46.7/HK$4.97 billion; the current stock price corresponds to 2024/2025/2026 EV/EBITDA by 11.3/9.8/9.3 times, respectively. Our target price is HK$3.6, maintaining a “buy” rating.
Risk warning: Macau's tourism recovery fell short of expectations, China's macroeconomic growth fell short of expectations, overseas gaming markets were diverted, and VIP recovery fell short of expectations.