The short-term success of SJM’s under-construction Cotai integrated resort, Grand Lisboa Palace, appears questionable with the company’s lack of expertise in the lucrative premium mass market an ongoing cause of concern.
That’s the opinion of Sanford C Bernstein analysts, who also warn of the potential for further delays to come after SJM revealed in July a revised opening date of December 2020.
“With the ‘continuing’ delay in coming to Cotai, SJM is set to continue to lose market share,” said analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu. “And even with the eventual opening of Grand Lisboa Palace, there is little to be bullish about. As we have seen from the slower than anticipated ramp up of MGM Cotai, a new property on Cotai is not an easy endeavor.
“The key is premium mass, something SJM has not been able to execute on in the past and will face a steep curve with the Cotai property.
“We see no company specific catalysts that will benefit the company in the near or medium term (even if mass performance on peninsula has shown some modest improvement).
“The lack of any strategy to capture the high margin premium mass market and the continued delay in opening Cotai are fundamental problems with management direction and focus.”
Despite those concerns, Bernstein believes SJM shares now show limited downside, having fallen 37% to below HK$8.00 from a 2019 high of HK$10.62 in May in response to predicted risks.
However, in the wake of Grand Lisboa Palace’s opening date being put back to late 2020 and the construction budget increased from HK$36 billion to HK$39 billion, they also warned that further delays wouldn’t surprise.
“The delay in opening and cost escalation came as no surprises to us as we were already modeling a higher cost,” the analysts said. “We would not be shocked if delays get extended further and the final budget goes higher.”