Former monopoly casino operator Sociedade de Jogos de Macau, currently preparing for an initial public stock offering in Hong Kong, saw its gaming revenue decline by 2.3 percent last year in the face of new competition.
The downturn came despite the market’s overall 11.3 percent growth and SJM opening two new casinos early last year and subsequently expanding several others.
Analysts had expected SJM to lose market share in 2005, its first full year facing competition, but the absolute revenue decline came as a surprise even though the Macau government previously reported that VIP gaming revenues in the enclave fell 3.1 percent last year.
In its annual report published in the Macau government gazette Wednesday, SJM did not break out VIP and mass market revenues, but as with the enclave as a whole, most of its turnover traditionally comes from VIP baccarat.
„SJM and its partners are still having some difficulty matching up with the competition,“ said analyst Kent Yau of Core Pacific-Yamaichi International.
BOC International analyst Ken Yeung said: „We expect SJM‘s market share to continue to decline in 2006.“ Yeung and Citigroup both said they expect SJM‘s market share to decline from 75 percent to 25 percent by the end of 2009 as three new operators enter the market.
Citigroup added in a research note that it sees SJM‘s annual gaming revenue potentially declining to 16 billion patacas (HKD 15.53 billion) by 2009.
SJM reported gaming revenue of 34.41 billion patacas for 2005, down from 35.21 billion a year before. However, net income rose 36.3 percent to 5.56 billion patacas after the company booked income of 1.61 billion patacas from selling subconcession Macau casino operation rights to a joint venture between MGM Mirage and Pansy Ho Chiu-king, the daughter of SJM controlling shareholder and managing director Stanley Ho Hung-sun. The company recorded 13.9 billion patacas in marketing and promotion expenses.
Analysts said the results cast a shadow over the IPO, targeted for June, and dash any hopes that SJM could achieve pricing comparable to United States-listed operators such as Las Vegas Sands, now a competitor in Macau. Shares of Las Vegas Sands, listed in New York a year and a half ago, trade at 80 times 2005 earnings based on its prospects for future income growth. By contrast, Yeung said, SJM‘s prospective investors face a potential profit decline.
SJM paid out 11.4 billion patacas, double its profit, in dividends last year. Stanley Ho’s Sociedade de Turismo e Diversoes de Macau, the former sole gaming license holder in Macau, holds an 80 percent stake in SJM and Ho personally holds a 10 percent interest.
SJM said in its annual report that management is focusing on controlling costs and upgrading facilities. The company has several casino projects under way, including the HKD 3 billion Grand Lisboa, set to open late this year. It now operates 16 of Macau’s 19 casinos.
Galaxy Casino and Venetian Macau, a subsidiary of Las Vegas Sands, both entered the market in mid-2004. In its annual report Wednesday, Galaxy reported annual gaming revenue of 3.99 billion patacas, up 29.5 percent on 2004 when it was only open for six months. It recorded an annual net profit of 6.2 million patacas for 2005. Venetian Macau, by contrast, reported 2005 gaming revenue of 7.71 billion patacas, up from 3.11 billion in the previous year.