Year end 31 Dec E 2010E 2011E Revenue (HK$ mn) 32, , , , ,

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1 SJM (880 HK) Company update Not rated 16 September, 2009 Interim Results 2009: 1H 2009 results overview: In 1H 2009, SJM s gaming revenue decreased by 4.3% to HK$ 14.7 billion and accounted for 99% of the total revenue of the company. EBITDA declined by 5.8% to HK$ 925 million. This was caused by the downturn of the global economy and the gaming industry. The net profit fell by 40.8% to HK$ 338 million; mainly due to the increased depreciation and interest cost resulting from the completion of Hotel Grand Lisboa in December Leader in the Macau gaming industry: SJM remained the leader of the gaming industry; with an overall market share of 29.6% up from 27.1% (1H 2008). In the VIP segment, SJM had a market share of 26.0%; whereas it had a market share of 40.2% in the mass market segment. Grand Lisboa: The flagship of SJM, Grand Lisboa, contributed 78% of the company s EBITDA. Grand Lisboa s EBITDA declined by 11.1% to HK$ 720 million compared to the same period last year; due to increased commissions given to gaming promoters. Moreover, SJM will open additional VIP rooms on the th floors in early October. Two new casinos: SJM plans to open two new casinos in the remaining of this year. Casino L Arc will be opened on 21 September 2009 which offers 170 tables and 420 slot machines in the most heavily-trafficked location in Macau. Casino Oceanus, which will cater to day-trip visitors, will have 265 mass market tables and 565 slot machines. Oceanus is scheduled to be opened at the end of Outlook: Macau gaming revenue rose by 10% in July and August 2009 compared to the same period in We expect this upward trend will continue in 2H 2009 due to the recovery of PRC economy, the rebound of the share and property markets and the relaxation of Individual Visitor Scheme. Furthermore, the introduction of junket commission cap in October 209 should have a positive impact on the EBITDA of gaming companies. Patrick Wong (852) patrickwong@firstshanghai.com.hk Industry Price Target price Bloomberg code Market cap. O/S shares Gaming HK$4.6 Not rated 880 HK HK$ 22.85bn 5.0bn 52wk high/low HK$ 4.58/1.20 NAV per share HK$ 1.49 Major shareholder Dr. Ho Hung Sun, Stanley (68.7%) Valuation: We have not initiated a research report for this company yet. The market consensus target price is HK$5.29 and EPS 2010 is Hk$0.27, which implies a 2010 forward PE of 19.6x. Earning Summary Price Performance Year end 31 Dec E 2010E 2011E Revenue (HK$ mn) 32, , , , , Growth (%) -6.0% -12.9% 8.7% 12.6% 4.0% EBITDA (HK$ mn) 2, , , , , Growth (%) -30.1% -22.4% 21.6% 39.1% 5.6% 3.0 Net profit (HK$ mn) 1, , ,689.5 Growth (%) -36.7% -48.1% 5.4% 68.5% 19.5% EPS (HKcents) P/E (x) DPS (HKcents) N/A /17 10/17 11/17 12/17 1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 Dividend yield(%) N/A 1.3% 1.6% 2.6% 3.1% Source: Company information, Bloomberg Source: Bloomberg First Shanghai Securities Limited

2 1H 2009 results overview: In 1H 2009, SJM s gaming revenue decreased by 4.3% to HK$ 14.7 billion and accounted for 99% of the total revenue of the company. EBITDA declined by 5.8% to HK$ 925 million. This was caused by the downturn of the global economy and the gaming industry. The net profit fell by 40.8% to HK$ 338 million; mainly due to the increased depreciation and interest cost resulting from the completion of Hotel Grand Lisboa in December Figure 1: Overview 1H 08 1H 09 % chg Note Group revenue 15, , % Gaming revenue Downturn of global economy and 15, , % gaming industry Special gaming tax, premium and levy (6,014.8) (5,752.8) -4.4% Other income % Marketing and promotional expenses (5,643.3) (5,717.8) 1.3% Operating and administrative expenses (3,285.4) (3,026.2) -7.9% Reduced 1,000 headcounts EBITDA % Finance costs Increased interest costs from Grand (64.4) (105.0) 63.0% Lisboa Profit before tax % Tax expense (27.8) (8.7) -68.7% Minority interest % Profit attributable to owners Increased depreciation and finance % of the company costs Earnings per share (cents) % Margin 1H 08 1H 09 % chg Note EBITDA margin 6.3% 6.2% -0.1% Net profit margin 3.7% 2.3% -1.4% Source: Company information, FSSL Gaming revenue: The gaming revenue of the Macau in 1H 2009 dropped by 12.4% compared to the same period last year while SJM dropped by only 4.3%; which demonstrated that SJM outperformed the market in 1H Figure 2: Comparison of Market and SJM gaming revenue HK$ (million) 1H H 2009 % chg Market 56, , % SJM 15, , % Source: Company information, DICJ - 2 -

3 Breakdown of the gaming revenue: VIP operation was still the main contributor to the gaming revenue of SJM. Followed by the mass market segment which contributed 40.2% of the total revenue; this segment achieved a 4.6% growth compared to 1H Figure 3: Breakdown of SJM gaming revenue HK$ (million) 1H H 2009 % chg VIP operations 9, , % Mass market table operations 5, , % Slot machine operations % Others % Total 15, , % Source: Company information Leader in the Macau gaming industry: SJM remained the leader of the gaming industry; with an overall market share of 29.6% up from 27.1% (1H 2008). In the VIP segment, SJM had a market share of 26.0%; whereas it had a market share of 40.2% in the mass market segment. Figure 4: Market share of Macau gaming industry Melco 9% MGM 8% SJM 30% Venetian 25% Wynn 16% Galaxy 12% SJM Galaxy Wynn Venetian Melco MGM Source: Macau Daily Strong balance sheet: SJM currently holds HK$ 6.3 billion of cash. The company plans to use these cash to finance the development of Oceanus and other future investment opportunities; therefore the company did not declare any interim dividend. Having said that, SJM will keep its dividend payout ratio at 50% for the full year

4 Figure 5: Net cash position HK$ (million) FY H 2009 Bank balances and cash 5, ,911.9 Pledged bank deposits Long - term bank loans (5,844.0) (5,402.0) Net cash Source: Company information Reduced operating expenses: SJM reduced its operating expenses by HK$ 369 million; mainly due to the reduction of 1,000 headcounts. Grand Lisboa: The flagship of SJM, Grand Lisboa, contributed 78% of the company s EBITDA. Grand Lisboa s EBITDA declined by 11.1% to HK$ 720 million compared to the same period last year; due to increased commissions given to gaming promoters. Moreover, SJM will open additional VIP rooms on the th floors in early October. Two new casinos: SJM plans to open two new casinos in the remaining of this year. Casino L Arc will be opened on 21 September 2009 which offers 170 tables and 420 slot machines in the most heavily-trafficked location in Macau. Casino Oceanus, which will cater to day-trip visitors, will have 265 mass market tables and 565 slot machines. Oceanus is scheduled to be opened at the end of Outlook: Macau gaming revenue rose by 10% in July and August 2009 compared to the same period in We expect this upward trend will continue in 2H 2009 due to the recovery of PRC economy, the rebound of the share and property markets and the relaxation of Individual Visitor Scheme. Furthermore, the introduction of junket commission cap in October 209 should have a positive impact on the EBITDA of gaming companies

5 Figure 6: 1H 2009 Macau gaming revenue In million MOP 12, Monthly Gaming Revenue 10, , , , , Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Source: DSEC Valuation We have not initiated a research report for this company yet. The market consensus target price is HK$5.29 and EPS 2010 is Hk$0.27, which implies a 2010 forward PE of 19.6x

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