SJM Holdings’ Strategic Hotel Conversion in Hengqin: A Bid to Alleviate Macau’s Supply Crunch Amid New Visa Easing
Macau, December 13, 2024 – SJM Holdings Ltd, a major player in the casino industry, has announced plans to transform a commercial property located in Hengqin into a hotel, which analysts believe could help mitigate the company’s ‘undersupplied’ inventory in the Macau market. Morgan Stanley Asia Ltd shared these insights in a memo released on Wednesday, emphasizing both the strategic importance of this move and the potential challenges it may face in the near term.
Strategic Move Amidst Market Conditions
Analysts Praveen Choudhary and Gareth Leung from Morgan Stanley noted in their report that while SJM Holdings’ initiative to convert the property into a hotel is a practical step, its immediate impact on the company’s operations will be limited. Additionally, they pointed out that the conversion will lead to increased financial leverage for the casino operator.
The decision aligns with recent travel policy changes announced by the Chinese government, aimed at easing travel restrictions for residents of mainland China, particularly those from the neighbouring city of Zhuhai and Hengqin Island. Starting January 1, 2025, mainland residents with household registrations and residence permits for Hengqin can apply for multiple-entry visas to Macau, allowing them to visit without a cap on the number of trips. Each visit, however, is limited to a maximum stay of seven days.
Bridging the Gap in Hotel Inventory
The easing of travel restrictions is seen as a boon for the Macau gaming sector, and Morgan Stanley’s memo characterized this policy shift as “mildly positive” for market sentiment. The analysts highlighted that the increased ease of travel could facilitate the movement of guests from Hengqin to Macau casinos, enhancing the potential customer base for SJM Holdings.
The company has committed to acquiring office and retail space in Hengqin for CNY546 million (approximately US$75.2 million) from Shun Tak Holdings Ltd. The goal is to transform this space into a three-star hotel under the esteemed Lisboa brand, strategically positioned near Hengqin Port. SJM is projecting the hotel will feature around 300 rooms, each approximately 500 square feet (46.5 square meters), with an estimated cost of HKD2 million (around US$257,199) per room. However, the completion of this project is expected to take approximately 18 months.
Financial Implications and Future Outlook
While SJM Holdings aims to bolster its inventory in the Macau market through this new hotel, analysts caution that the deal may result in heightened financial gearing. SJM Holdings’ net debt reportedly stood at HKD23 billion as of September, equating to roughly seven times its earnings before interest, taxation, depreciation, and amortization (EBITDA) for the preceding twelve months.
Overall, the plans for the Hengqin property signify SJM Holdings’ commitment to enhancing its competitive positioning in the Macau gaming landscape while navigating the challenges presented by current market dynamics. As the project unfolds, it will be closely monitored by industry analysts and stakeholders, eager to see how it will influence the broader context of Macau’s gaming and hospitality sectors.
For further updates and information on SJM Holdings and the Macau gaming market, stay tuned to Timely News.