Initiate "Buy" on SJM (880.HK)

​AMC Wanhai initiates with Buy on SJM Holdings Ltd (880.HK) with a target price of HKD 8.50. Macau’s gaming sector is on an upward trajectory. It’s becoming more broad-based and less dependent on VIP gamblers. The sector is offering more wholesome tourism as it seeks to attract the recreational tourists and families. After a period of pain, the good times are back for the sector. SJM has been underperforming the sector and broader stock market, as it struggles to compete with newer resorts. However, the pessimism is overdone. The company still has a strong presence in the Macau gaming market. Also, the recovery in VIP gaming will benefit the company as a substantial part of its bottom-line accrues from the VIP segment. Further buttressing our argument is the deep valuation discount, as compared to peers, the company is trading at. The valuation comfort would limit potential downside whilst providing solid bedrock for future up-move. In our view, worst of the news have already been priced in for the stock while the upside from successful opening of the Grand Lisboa Palace has not been factored in. Our positive view on the company is based on improving sector fundamentals and cheap valuation. We deem the current risk-return potential of the stock to be appealing and attractive for long term investors.