SJM HOLDING LTD-FAIR VALUE ESTIMATION

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SJM reported its 2017 Q1 result. total revenue fell 5.2% on a year on year basis to HKD10.53 billion and EBITDA increased marginal by 0.7% to HKD843 million versus 2016 Q1 due to improvement in its EBITDA margin. From the reported result, it is clearly indicated that SJM is currently under intense competition from its peers due to the company's new casino is still under construction and may further delay its opening into the second half of 2018. As such, its earnings for 2017 are likely to grow at a very modest rate.

Attached below my fair value estimation for SJM at SGD6.83 with the assumption that its future cashflow (10 years) to remain flat at zero growth rate and this estimation is close to some of the analysts' target price between HKD6-7 plus. Nevertheless such assumption is too conservative and unlikely to happen as well. Reason being is although its new casino opening is delayed, a half to one year delay is unlikely to have material impact to its future 10 years cashflow. Once its new casino begin operation, it will certainly boost its earning and cashflow significantly. Thus with an assumption of 10% annual growth rate, its discounted present value cashflow will increased from HKD2.45 to HKD4.15 and raise its intrinsic value to HKD8.53.

An average annual growth rate of 10% only require a 5% annual growth in tourist number and a 5% annual growth in bet size. So long the PRC economy and disposable income continue to grow at a minimum of 5% into the future, given time SJM fair value will be realised. Using the cashflow method, i'm able to share the rationale on why my fair value estimation is higher than most analysts. Hence, the same old message, an investor continue to monitor his invested company's financial performance as compared to his projection and continue to remain patience toward the final outcome. Thank you...