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Bernstein downgrades SJM to underperform, forecasts delay

Gaming-focused brokerage Bernstein Research has downgraded SJM to underperform (from market-perform), due to an expected delay in its Grand Lisboa Palace and ramp up challenges.

“While the stock has rallied 15 percent year-to-date (in line with the Macau group average), in our view this rally is unwarranted. We believe current SJM stock price is overpriced at this stage and investors are over-rewarding SJM with a market recovery from which it has only marginally benefited,” said the brokerage in a note on Thursday.

Bernstein also notes that while the market and SJM itself is aiming for a 18H2 opening, it believes that the opening will likely be delayed to 2019. There are also concerns over how quickly it will be able to ramp up.

“In our view, investors are overly bullish on the opening time and its ramp-up potential.”

The company continues to lose market share, says Bernstein, “which should weigh on SJM and lead to underperformance.”

A lack of growth and low profitability will also have its effect on the operator, said Bernstein.

Bernstein says it forecasts 2016-2019 EBITDA CAGR of only 5 percent, well below its estimate for the Macau industry of 12 percent.

The brokerage also reduced its 2018E and 2019E EBITDA by 19 percent and 17 percent, respectively, while its 2017E forecast is only slightly below consensus.

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