SJM Holding Ltd announced its 2016 Q4 and full year financial result.

Management reported a year on year basis of 11.5% fell in full year EBITDA to HKD3.417B. However this figure reported by the management included a one time refund of excess dredging expenses of HKD241M in Q4, thus after excluding this refund, the actual EBITDA for 2016 was HKD3.176B, which was a decline of 18% instead of what the management had reported.

The breakdown of the full year performance in quarters are as follows

Q1 EBITDA  decreased 32.5%

Q2 EBITDA  decreased 31%

Q3 EBITDA  decreased 8.4%

Q4 EBITDA  increased 2.1%

The above quarterly performance indicated that SJM had managed to return to growth in the last quarter of 2016 and given that Macau gaming industry have continued to registered an average of 10.6% in gaming revenue growth in the first two months of 2017, It is highly possible that the worst period of SJM is over and it is on track for recovery currently. SJM also maintained a cash rich and strong balance sheet, as at 31 Dec 2016, it hold a net cash of HKD12.62B with zero debt. It available cash cover 95% of its total liabilities and its current assets cover 1.08 times its total liabilities. SJM is currently in the construction in progress of its HKD36B integrated resort and casino and its management informed that the completion is currently sheduled to complete in 2016 Q4 instead of the earlier projection of 2016 Q3, operation is projected to begin in 1H of 2018. Upon completion it will expand SJM current hotel room capacity by 5 times and thus it is expected to bring substantial earning in pipeline to the company. 

Although the full year EBITDA result is still a decline as compared to 2015, given the strong gaming industry recovery in Macau and substantial pipeline of income to be generated from its mega project,  I continue to maintain my estimated fair value at HKD8.50.  Currently, SJM is the most laggard casino stocks in Macau and as at today closing price, I have the following PE ratio for the SJM and its peers

1) Galaxy Entertainment - PE Ratio at 18.69

2) Sand China - PE Ratio at 16.33

3) Wynn Macau - PE Ratio at 12.59

4) MGM China - PE Ratio at 13.26

5) SJM - PE Ratio at 10.76

Industry Average PE Ratio at 14.33

Existing SJM investors are advised to continue to hold on to your shares and not let go prematurely otherwise you may missed the rally when buyers begin to patronise SJM counter once a catalyst spark a run up.

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