JP Morgan calls SJM’s current liquidity “worrying”

The COVID-19 pandemic and regulatory pressure to clean up their act have impacted Macau casino concessionaires differently. Most casinos, though, have withstood both events, but JP Morgan now believes SJM Holdings has "worrying" issues with its liquidity, due to the two exceptional events that are unfolding in the Asian gaming market.

SJM may face liquidity issues, the investment bank’s analysts caution, and the firm may not have enough reserves to last it more than half a year. JP Morgan gives an example with Galaxy Entertainment Group, which arguably has reserves available for up to 30 years and get it through another downturn in gambling.

Analysts DS Kim, Livy Lyu and Amanda Cheng explained that SJM has been caught in a hard position because of pending government approval of itsrefinancing effort. This is only adding insult to an injury after Fitch downgraded SJM’s rating to "BB" from "BB+". SJM though is not too worried about these events and has a plan to continue operating in the region, as outlined in the company’s Annual Report shared with investors last week.

The analysts have chosen not to make any further predictions about the company and how its future in the market would pan out. JP Morgan agrees that for the time being SJM is the least favorable stock it would recommend to anyone seeking to invest in the Macau gaming market, but is optimistic about the future prospects of the gaming sector there as well.

There are no further risks to the licensing status of concessionaires, as the government decided to extend the licensing renewal period through December 31, 2022, by issuing six-month licenses in the meantime as it seeks to enact sweeping changes in the gambling industry.

Visitations from Guangdong province have restarted, although Labor Day weekend visitations are still below the expected and hoped-for numbers. However, Guangdong province is considered a "low risk" province as per Chinese health authorities, which means that it may continue to provide Macau with visitors which is crucial for the recovery of the special administrative region’s economy.

SJM was one of the companies to report in March that it’s shutting down its satellite operations along with Melco, in a bid to ensure the main operations better resilience in the market and focus on the bulk of its operations. A short-term challenge for SJM would be its refinancing, though.

Image credit: SJMHoldings.com