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SJM valuation discount presents opportunity, but upside limited

SJM Holdings will likely continue to trade at a valuation discount compared to its intrinsic value and that of the other Macau operators, but Bernstein analysts have stopped short of becoming bullish on the stock. 

In a note sent by Bernstein analysts on Thursday, the brokerage noted that the delay in Grand Lisboa Palace and the cost escalation is now already largely priced in - meaning that SJM looks fairly valued from a valuation perspective. 

Yet while the company is at a discount, the analysts also noted that it sees no company-specific catalysts in the near term either.

“While there has been some operational improvement, limited capability to drive premium mass and the continued delay in opening Cotai limit any material upside. However, the current valuation likely limits any material downside.”

The brokerage has updated its model to reflect current trends and a delay in the opening of Cotai to Q4 2020. 

Bernstein said it’s EBITDA estimates for SJM is slightly above consensus in 2019E, and 13 percent below consensus in 2020E. 

The brokerage has upgraded SJM to market-perform and has maintained its target price at HK$8.00. 

“While we raise our rating, we are not advocating investors begin accumulating the stock as we see more compelling opportunities in the sector (Wynn, Sands, Melco, and Galaxy remain more interesting and mispriced). For those investors looking to pair trade Macau, SJM remains a short candidate on a relative basis; however, a naked short of SJM is not warranted at current valuation, on our analysis.”

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