Sociedade de Jogos de Macau Holdings Ltd., a casino operator part-owned by Stanley Ho Hung-sun, will go ahead with a $500 million initial public offering in Hong Kong after scrapping plans for a $1 billion float in February.
SJM Holdings is marketing 1.25 billion new shares at 3.08 Hong Kong dollars to 4.08 Hong Kong dollars, or 40 cents to 52 cents, in an effort to raise at least 3.8 billion Hong Kong dollars, or $486 million, according to a sale document sent to investors Monday.
The price range represents nine to 12 times the company's earnings this year, down by nearly half from the 20 to 22 times earnings proposed in February before weak market conditions abetted the float's withdrawal.
"The weak market sentiment has made investors pull out money from the market and the recent lackluster performance of IPOs has also made them reluctant to buy into new offerings," Y.K. Chan, a strategist and fund manager at Phillip Capital Management in Hong Kong, told Reuters.
Indeed, the Hang Seng index, Hong Kong's leading stock index, has fallen 18 percent across the 2008 calendar year -- 13 offerings, including that of SJM Holdings, were pulled or delayed during the first half.
In the 2007 fiscal year, SJM Holdings' net profit fell 38 percent to 1.49 billion Hong Kong dollars, or $191 million, from 242 billion Hong Kong dollars, or $310 million, during 2006, the sale document said.
"SJM has missed its window for a higher-valuation tapping of the market," a fund manager who attended Monday's presentation for investors told South China Morning Post. "Everybody knows how competitive the Macau gaming industry has become after the market was liberalized in 2002. The worst is yet to come."
The company's market share in Macau has eroded significantly, due to increased competition in the special administrative region from competitors like Wynn Resorts Ltd. and Las Vegas Sands Corporation of the United States.
In the first quarter of fiscal 2008, SJM Holdings' market share totaled 28 percent, down from 42 percent during the same period in 2007, according to a report prepared by Deutsche Bank, which is serving as sole broker on the company's I.P.O.
The bank's report said shares in Asia-Pacific gaming operators trade on average at 15.5 times forecast earnings, while license holders in Macau trade at 50 times.
Despite a positive evaluation from Deutsche Bank, the float, pre-marketing for which began last week, has only managed to draw a "lukewarm response," The Morning Post said Wednesday, Hong Kong time.
The bank has said SJM Holdings, one of six licensed casino operators in Macau, is expected to generate net profits of 1.53 billion Hong Kong dollars, or $196 million, in fiscal 2008.
Orders for the float can be placed until July 2. Trading is set to begin on July 10.
At yearend 2007, SJM Holdings operated 18 of 28 casinos in Macau, with 1,412 tables and 3,702 slot machines.
The company held a monopoly on casinos in Macau for 40 years until 2002, when the government opened up licensing to foreign operators.
Chris Krafcik is the editor of IGamingNews. He lives in St. Louis, Mo.