Macau casino mogul Stanley Ho Hung-sun insists that he never gambles himself, and says he advises his friends to avoid betting as well. At first glance, Mr Ho's professed abhorrence of gambling appears at odds with his latest attempt to list casino operator SJM Holdings on Hong Kong's stock exchange. This is the third time he has tried to launch an initial public offering for the company. A proposed HK$15 billion stock issue for 25 per cent of SJM was put on hold at the beginning of last year in the face of a barrage of lawsuits filed by Mr Ho's sister, Winnie Ho Yuen-ki, part of a long-running and particularly vicious family feud. A scaled-back US$1 billion issue was then scrapped in January as markets tumbled and regulators queried the deal. Now SJM is returning to the market for a third attempt despite 37 outstanding lawsuits and stock market conditions just as lousy as January's. This time around, however, Mr Ho is seeking just US$654 million at the top end of his indicative pricing range. Given the fragility of sentiment, cutting the size of the offering to get the issue launched might seem a prudent tactic. The trouble is that despite the market's fall SJM has not appreciably cut the valuation at which it is prepared to sell stock. Like the proposed offering last year and January's aborted deal, the indicative price range for the latest issue still values SJM at between 10.3 and 13.7 times earnings. In other words, the deal is smaller not because SJM has cut the pricing, or that it has reduced the proportion of stock on offer, but because the company's earnings are collapsing. Since 2003, when Macau's gambling market opened to competition, the territory's casino revenues have almost tripled in volume. Over that time, however, SJM's revenues have barely changed as new punters have shunned the down at heel Lisboa casino in favour of more glamorous imports from Las Vegas. Even worse, with increased competition, the company's profit margins have been squeezed tightly. As a result, profits have fallen precipitously, from HK$5.4 billion in 2005, to just HK$1.49 billion last year (see the charts below). Mr Ho's response is to increase investment in new facilities, partly funded by the proposed offering. Yet whether the former monopolist can succeed in today's fiercely competitive casino market is doubtful. In addition to declining market share, shrinking earnings and his sister's lawsuits, Mr Ho has been dogged by allegations of links to organised crime, which have prevented him expanding his gambling business outside Macau. Meanwhile, observers note the dismal failure so far of SJM's management to respond to heightened competition and the lack of any clear succession plan. None of this necessarily means that SJM's offering will bomb. Mr Ho has enough friends among the tycoon community to support the issue, and yesterday the company's advisers were claiming the offering was fully subscribed. But even though the stock is cheap compared to other casino shares, it looks like a bet against very long odds indeed. Mr Ho's friends may end up wishing they had heeded his advice never to gamble.
