20220804-招银国际-SJMHOLs__Relaxed_quarantine_policy_and_shareholder_s_support_3页_623kb

CMBI Credit Commentary Summary

Core Content

This document is a credit commentary from CMBI Fixed Income Department, analyzing the trading opportunities of SJMHOLs (SJM Holdings Limited bonds) in the context of relaxed quarantine policies and shareholder support. The commentary is aimed at investors and highlights the potential for price appreciation and the factors influencing the Macau gaming sector.

Main Points

• Trading Buy Opportunity:
  CMBI identifies a buy opportunity for SJMHOLs due to the significant relaxation of quarantine policies and early shareholder support. They expect the bonds to trade higher and approach the upper end of their recent trading range.

• Quarantine Policy Relaxation:
  On 2 August 2022, the Macau government reduced the quarantine period from 10 + 7 to 7 + 3 days. This change allows for faster entry into casinos, which is a positive step for the gaming sector. However, the policy remains stringent compared to the average tourist stay of only 1.6 days, and the tightened travel approval policy in Mainland China continues to hinder the inflow of non-mainland travelers.

• Shareholder Support:
  SJM Holdings Limited announced HKD5bn in shareholder support, which includes a HKD3bn rights issue and HKD2bn in loans from STDM. While the total support was not unexpected, the structure and timing of the support are considered positive surprises. The rights issue is fully underwritten, and the terms of the loan are favorable (unsecured, 6-year term, 4% annual interest rate).

• Sector Recovery Outlook:
  The recovery of the Macau gaming sector is expected to be gradual. Full recovery is still constrained by the ongoing impact of the quarantine policy and travel restrictions. CMBI believes that for the bonds to break out of their range-bound pattern, further relaxation of the quarantine policy is necessary.

• Bond Performance:
  SJMHOL'26 and '28, which were offered at HKD69 and HKD64 respectively, moved 3 points higher in the morning of 2 August 2022, indicating a positive market reaction to the recent developments.

Key Information

• Quarantine Period Change: From 10 + 7 to 7 + 3 days.
• Shareholder Support: HKD5bn, including HKD3bn rights issue and HKD2bn loans from STDM.
• Bond Trading Range:
  • SJMHOL'26: High 50s to High 70s
  • SJMHOL'28: Low 50s to Low 70s
• Tourist Contributions:
  • Mainland China: 71%
  • Hong Kong: 19%
  • Taiwan: 3%
• Market Reaction: Positive movement of 3 points in SJMHOL'26 and '28.

Additional Information

• CMBI Fixed Income Department Contact:
  • Glenn Ko, CFA: (852) 3657 6235 | glennko@cmbi.com.hk
• Disclaimer:
  • The report is for informational purposes only and does not constitute investment advice.
  • CMBIS does not provide individually tailored investment advice.
  • There are risks involved in trading securities, and past performance does not guarantee future results.
  • The report is subject to change without notice and may contain different conclusions than other CMBI publications.
  • There may be conflicts of interest due to CMBIS's potential involvement in transactions related to the mentioned securities.

Legal and Regulatory Information

• United Kingdom:
  The report is only provided to persons falling within Article 19(5) or Article 49(2) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005.
• United States:
  CMBIS is not a registered broker-dealer in the U.S. and the report is intended for distribution to "major U.S. institutional investors" only.
• Singapore:
  The report is distributed by CMBI (Singapore) Pte. Limited, an Exempt Financial Adviser, and recipients should contact CMBISG for any matters related to the report.

Conclusion

CMBI sees potential for SJMHOLs to trade higher as the Macau gaming sector begins to recover, supported by the relaxation of quarantine policies and early shareholder backing. However, they caution that the sector's full recovery is still dependent on further policy changes and the easing of travel restrictions, particularly from Mainland China.