Citigroup lowers SJM HOLDINGS' target price to HKD 2.65, expects hotel acquisition to increase debt ratio

Citi believes that SJM HOLDINGS (00880.HK) acquiring the Lisboa Hotel for HKD 1.75 billion is more reasonable than expected. The management's decision not to proceed with the acquisition of a 49% stake in the Sands is also encouraging; however, the bank remains concerned about the potential loss of market share the group may face in the short term.

Additionally, after completing the acquisition of the Lisboa Hotel and other properties, the group's net debt to EBITDA ratio will easily exceed 7 times, compared to 6.5 times as of the third quarter. The bank also expects the annual impairment losses to increase, as the group has decided to cease operations at the Sands casino while continuing to hold its 51% stake. In response to the rising debt ratio, the bank has lowered its target price from HKD 2.85 to HKD 2.65, maintaining a "Sell" rating