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SJM HOLDINGS ANNUAL RESULTS CONF CALL: "NOTES"


HIGHLIGHTS FROM THE RELEASE

  • Gaming revenues grew 21.7% to HK$34.1BN (US$4.4BN) and Adjusted EBITDA increased 41.8% to HK$2.27BN (US$293MM). If calculated on a US GAAP basis, EBITDA margin would have been 10.8%.
  •  In 2009 SJM's overall market share gaming revenue rose to 29.4% from 26.5% in 2008.
    •  Share of Mass market table revenues was 40.7% and SJM's share of VIP gaming revenue was 25.8%.
  • VIP table revenues accounted for 58.8% of total gaming revenues. At Dec 31, 2009, SJM had 320 VIP tables with 30 junkets compared to 180 VIP tables with 40 junkets at the end of 2008.
    • Average net daily win per table increased to HK$229,536 (US$29.6K).
    • RC Volumes increased 29.8% y-o-y to HK$718.8BN
    • Hold rate decreased to 2.78% in 2009 from 2.88% in 2008
  • Mass market revenues accounted for 38.3% of total gaming revenues in 2009. At Dec 31, 2009, SJM had 1,404 mass table, including 249 new mass tables at Oceanus and 99 mass tables at Casino L'Arc, compared to 1,154 mass tables at Dec 31, 2008.
    • Average win per daily table increased to HK$29,978 ($US 3,866)
  • Slot machine revenues comprised of 3% of SJM's total gaming revenue in 2009. SJM had 4,567 slot machines at year end, compared to 3,867 last year.  The increase was mainly due to the addition of 521 slots at Oceanus and 383 slots at L'Arc.
    • SJM operated slots in 15 of its casinos and 4 slot halls.
    • Average win daily per machine increased to HK$3,955 (US$510)
  • Casino Grand Lisboa Adjusted Property EBITDA was HK$1,654MM (US$213MM) with an EBITDA margin of 17.5% (or 25.8% if prepared on a US GAAP basis) 
    • Daily win per Mass table increased 23.6% to HK$35,908 ($4,630)
    • Net win per VIP table increased by 12.9% to HK$329,905 (US$42.5K)
    • Net win per slot grew 27% to HK1,241 (US$160)
    • "During the year two VIP promoters relocated from Casino Grand Lisboa to satellite casinos, and in October 2009, 16 new VIP gaming tables were added to the 36th floor of Grand Lisboa. After October 2009 the property’s VIP gaming revenue increased, and Casino Grand Lisboa contributed $22,974 million in VIP chips sales in the month of December 2009, or 32.9% of the Company’s total VIP chips sales for that month"
      • We understand that this is where SJM is offering a 55% payout to junkets in return for absorption of certain costs
    • Average daily visitors were 26,241
  • Casino Lisboa contributed gaming revenues of HK$9.4BN
    • VIP operations accounted for HK$7.76BN and RC VIP volume of HK$290.2BN
    • Average VIP win per table of HK$347,141 (US$44.8K)
    • Mass market revenues were HK$1,630 and slots revenues were $27MM. Average net win per mass table were HK$30,942 (US$3,990)
  • Casino Jai Alai & Oceanus contributed gaming revenues of HK$681MM
  • "During 2009 SJM obtained more attractive terms in revised service agreements for its satellite (third party-promoted) casinos, and opened three additional satellite casinos: Casino Jimei, Casino Lan Kwai Fong Macau and Casino L’Arc Macau."
  • CAPEX projects:
    • Grand Lisboa: The 2 additional VIP floors are scheduled to open with 31 tables in 4Q2010.
    • Lisboa: Will renovate certain mass market and VIP gaming areas in 2010
    • Casino Jai Alai & Oceanus:  In April 2010 they will open a new set of escalators leading to the overhead walkway to Casino Oceanus from the ferry terminal. Later in the 2010 SJM will open a second walkway connecting Oceanus to Jai Lai.  Subject to approvals, SJM will also commence renovation plans at former Casino Jai Alai premises.
    • Longer term plans for 2 sites on Cotai:
      • 10,000 square meter site directly across from LVS's convention center
      • 73,856 square meter site adjacent to the Macau East Asian Games Dome
      • No timeline - but they are taking a wait and see approach - want to see how 5 & 6 do.

CONF CALL

  • Dividend of 9 cents per share was recommended by the Board and will be considered at May's Board meeting
  • Opened/ Reopened 4 casinos in 2009
  • Improved operational efficiencies, only increased employees by 300 despite large gaming increase
  • They are very optimistic about the future
  • Will renovate some part of Casino Lisboa and install some IT and player tracking systems. Will also outfit more floors of Casino Grand Lisboa for additional VIP tables
    • BYI is installing the mentioned tracking systems

Q&A

  • Oceanus is ramping up nicely using their yield management systems. Target is 20k win per table and they believe they will hit that.  The initial ramp was slow.
  • New service contracts with promoters clearing 5% net share of gaming revenues. Have 13 to 14 of the 3rd party casinos on the new form of contracts.  New contracts allowed them to increased EBITDA by HK $500MM
  • Will start breaking out quarterly numbers going forward and provide more disclosure
  • Old Lisboa is making positive EBITDA and the promoters casinos are also positive EBITDA contributors in 2009
  • Don't think that the table cap will have much of an impact on them. They don't plan to add more capacity over the next 3 years. They can always reshuffle their tables to increase their efficiency
  • Would they consider going to Cotai?
    • Taking a wait and see approach on Cotai
    • Want to see the timing of 5 & 6 and how well it does when it opens
  • Given the liquidity in available opportunities in Macau they will continue to hold a lot of cash
  • L'Hermitage?
    • They have a strategy there.  Its built to lease but they aren't planning on doing anything there imminently
  • Commission rate that they are paying to junkets
    • EBITDA margin was 17.7% in 1H09 and 17.5% for FY meaning that they got no leverage in commission caps
    • Not a VIP business at Lisboa - increased the VIP mix there - and therefore decreased the margin
    • Moving forward if they continue to expand VIP as a % of total their margin will be impacted
  • Wouldn't assume that just because of the table cap that SJM won't be building anything new over the next 3 years. They have 1,700 tables out of 5,000 or so in the market. If they want to open something new they can reshuffle their tables
    • Pursing the Portuguese school site next to Grand Lisboa
  • EBITDA at Grand Lisboa going forward? In 2010 - VIP has been the source of growth in the market, and that growth comes at a lower margin, though still additive. So margins will be down in 1Q2010 y-o-y.
  • Will they continue to payout their historical payout ratio of 50% 
    • Yes - for the time being unless they have a very strong financial commitment to make
  • Hard call to say how VIP and general Macau growth will trend for the rest of the year.
  • Why report quarterly results?
    • BC their competitors do it and HK will move to a quarterly system within the next few years
  • Don't know the impact of tightening measures in China on the rest of the year.  Don't see this level of business activity as a bubble. Have no idea how the rest of the year will grow.
    • China says GDP growth will be close to 8% and thinks that Macau will do a little better
  • Minority interest is all Ponte 16
  • What is driving this huge growth in VIP business. 
    • Think its money supply - there is lots of cash floating around... you can put your cash in the bank or lend it to your junkets to lend out to gamblers... and make a return that way
    • Thinks that the government has continued with the loose monetary policy
  • Risk of the government clamping down on growth
    • China has not changed the visitation scheme.  China wants a rotation of visitation vs. operators just tapping the same players repeatedly
    • China said that they will continue with monetary easing and that should continue to benefit them
  • CoD hasn't generated the level of business that many expected - so they are still taking to a wait and see approach to Cotai (in regards to the site across from LVS's convention center that they were looking at developing at some point in the future)