Company Reports

Narrow-moat Sands China’s first-quarter performance was slightly disappointing, owing to the closures of its Cotai arena and some hotel rooms on renovation upgrades, as part of its Londoner phase 2 project. The USD 1.2 billion investment project has caused a near-term market share loss in gross gaming revenue, or GGR, and we anticipate it will continue to affect the firm’s profitability in the coming two to three quarters. However, we think that upon completion, the high-quality assets will help to reposition the property toward premium mass and elevate customer experience, buttressing its intangible asset advantage in the long term and driving additional high-value customer volume and sales. We lower our 2024-25 revenue forecasts by 3%-5% and adjusted EBITDA by 8%-10%, but our longer-term earnings forecasts are unchanged. Hence, we keep our fair value estimate of HKD 27.30 per share.

Sands China is a strong contender in the Macao gaming sector with a strong presence in mass, retail, and non-gaming facilities and in Cotai. The company has a majority of its gaming tables located in Cotai, a popular tourist destination with a critical mass of world-class integrated resorts that continue to take market share from casinos in the Peninsula. Sands China used to place lower priority on the lower-margin VIP segment, which better positions it amid the regulatory risk on the VIP segment. To catch up to the rising demand from the premium mass segment, Sands Cotai Central was renovated, expanded, and rebranded to the Londoner in phases through 2025. This will help defend its market share from its competitors.

Following Galaxy’s special interim and final dividend offerings, MGM China and Wynn Macau have followed suit and both declared final dividends on March 21. We view this as a positive surprise, which came in at least one year earlier than our expectations, suggesting that management groups are confident in Macao’s gaming demand recovery. We maintain our assumption that industry gross gaming revenue will rise to 85% of 2019’s level in 2024, up from 63% in 2023. With that, we believe Macao casinos will record meaningful improvements in profitability and cash flows in 2024. We also expect Sands China to resume its dividend program in 2024, while Melco Resorts and SJM will likely be later in 2025 given the still-stretched balance sheet for both companies.

Sands China is a strong contender in the Macao gaming sector with a strong presence in mass, retail, and non-gaming facilities and in Cotai. The company has a majority of its gaming tables located in Cotai, a popular tourist destination with a critical mass of world-class integrated resorts that continue to take market share from casinos in the Peninsula. Sands China used to place lower priority on the lower-margin VIP segment, which better positions it amid the regulatory risk on the VIP segment. To catch up to the rising demand from the premium mass segment, Sands Cotai Central was renovated, expanded, and rebranded to the Londoner in phases through 2025. This will help defend its market share from its competitors.

Sands China’s fourth-quarter 2023 performance was largely in line with our expectations, which reflects a moderate sequential demand recovery in both gaming and nongaming segments, as visitation to Macao reached 90% of 2019’s level, up from 85% in the prior quarter. We expect the growth momentum to extend into the coming quarters, with rising airline capacity and various nongaming events across different casino properties helping support visitor growth. We raise our fair value estimate of Sands China to HKD 27.30 per share from HKD 26.50, after a minor tweak in our earnings forecasts. We believe Sands China will be the key beneficiary to capture further demand recovery in Macao, underpinned by its focus on the mass market, well-positioned properties with largest room counts in Macao, and successful track record in nongaming activities. We think the shares are undervalued as of market close on Jan. 25, 2024.

Sands China is a strong contender in the Macao gaming sector with a strong presence in mass, retail, and non-gaming facilities and in Cotai. The company has a majority of its gaming tables located in Cotai, a popular tourist destination with a critical mass of world-class integrated resorts that continue to take market share from casinos in the Peninsula. Sands China used to place lower priority on the lower-margin VIP segment, which better positions it amid the regulatory risk on the VIP segment. To catch up to the rising demand from the premium mass segment, Sands Cotai Central was renovated, expanded, and rebranded to the Londoner in phases through 2025. This will help defend its market share from its competitors.

We maintain our Sands China fair value estimate of HKD 26.50, following in-line third-quarter results, which reflect continued demand recovery in both gaming and nongaming segments. We think the stronger rebound of base mass volume is a key highlight, helping to ease market concerns over a slower recovery of group tour volume and base mass traffic. We believe Sands China’s focus on the mass market, and its largest room counts in Macao—as well as a successful track record in nongaming activities—make it the key beneficiary to capture further demand recovery in Macao. Our long-term industry gross gaming revenue, or GGR, and Sands China profit forecasts are unchanged. We think the shares are undervalued as of market close on Oct. 19, after the recent share price weakness.

We raise our fair value estimate of Sands China to HKD 26.50 per share from HKD 25.00, following the company’s strong second-quarter performance, with solid sales recovery across all gaming and nongaming segments. Management sees a sharp acceleration in both business volume and customer spending, with revenue and adjusted EBITDA hitting 76% and 71% of 2019 levels, respectively. With hotel room supply and airline capacity continuing to recover, we expect Sands China to extend robust growth momentum in the second half. We lift our industry gross gaming revenue, or GGR, to MOP 181 billion, or 62% of 2019 levels, up from 50% in our previous forecast, to reflect a more upbeat outlook for Macao’s recovery in 2023. Accordingly, we raise our 2023 revenue and adjusted EBITDA forecasts for Sands China by 30% and 24%, to USD 6.6 billion and USD 2.1 billion, respectively, while maintaining our long-term GGR and profit forecasts. We think the shares are fairly valued as of market close on July 20. But a continued recovery of tourism traffic to Macao will likely support the share price in the near term.

Sands China is a strong contender in the Macao gaming sector with a strong presence in mass, retail, and non-gaming facilities and in Cotai. The company has a majority of its gaming tables located in Cotai, a popular tourist destination with a critical mass of world-class integrated resorts that continue to take market share from casinos in the Peninsula. Sands China used to place lower priority on the lower-margin VIP segment, which better positions it amid the regulatory risk on the VIP segment. To catch up to the rising demand from the premium mass segment, Sands Cotai Central was renovated, expanded, and rebranded to the Londoner in phases through 2022. This will help defend its market share from its biggest competitor, Galaxy’s phase 3 and 4 that are expected to open in 2023 and 2024, respectively.

Sands China’s first-quarter adjusted EBITDA of USD 398 million beats market expectations, with strong recovery across all gaming and nongaming segments. A favorable mix shift toward high-margin mass business, along with the company’s multiple rounds of cost-cutting initiatives, also drove its EBITDA margin to 31.1% in the first quarter. With hotel room supply and airline capacity continuing to recover, we expect Sands China to extend robust growth momentum in coming quarters. We keep our 2023 revenue forecast at USD 5 billion, or 58% of 2019 levels, but lift our 2023 EBITDA margin assumption to 32%, up from 26.4% in our earlier forecast, to incorporate a strong margin expansion outlook. This leads to a 17.5% rise in adjusted EBITDA to USD 1.6 billion in 2023, and a rise in our fair value estimate of Sands China to HKD 25.00 per share from HKD 24.50. With share prices more than doubling over the past five months, we think the shares are fairly valued as of market close on April 20. But a continued recovery of tourism traffic to Macao will likely support the share price in the near term.

Sands China is a strong contender in the Macao gaming sector with a strong presence in mass, retail, and non-gaming facilities and in Cotai. The company has a majority of its gaming tables located in Cotai, a popular tourist destination with a critical mass of world-class integrated resorts that continue to take market share from casinos in the Peninsula. Sands China used to place lower priority on the lower-margin VIP segment, which better positions it amid the regulatory risk on the VIP segment. To catch up to the rising demand from the premium mass segment, Sands Cotai Central was renovated, expanded, and rebranded to the Londoner in phases through 2022. This will help defend its market share from its biggest competitor, Galaxy’s phase 3 and 4 that are expected to open in 2023 and 2024, respectively.

Sands China’s sluggish fourth-quarter results contain little surprise, but management’s upbeat comment on Lunar New Year performance is encouraging, in which we see strong recovery across all segments in terms of both traffic volume and customer spending. This reaffirms our view that a maintainable recovery of gaming demand is underway. We maintain our assumption of industry gross gaming revenue, or GGR, returning to 50% of 2019's level in 2023, up from 14.4% in 2022. We raise our fair value estimate for Sands China to HKD 24.50 per share from HKD 23.50, after rolling our model one year forward, and we expect Sands China’s adjusted EBITDA to come in at a positive USD 1.3 billion in 2023, compared with a negative USD 324 million in 2022. With share prices more than doubling over the past three months, we think the shares are fairly valued as of market close on Jan. 26. That said, we believe the restart of group tours to Macao remains a potential catalyst that will likely support share prices in the near term, given Sands China is the key beneficiary.

Sands China is a strong contender in the Macao gaming sector with a strong presence in mass, retail, and non-gaming facilities and in Cotai. The company has a majority of its gaming tables located in Cotai, a popular tourist destination with a critical mass of world-class integrated resorts that continue to take market share from casinos in the Peninsula. Sands China used to place lower priority on the lower-margin VIP segment, which better positions it amid the regulatory risk on the VIP segment. To catch up to the rising demand from the premium mass segment, Sands Cotai Central was renovated, expanded, and rebranded to the Londoner in phases through 2022. This will help defend its market share from its biggest competitor, Galaxy’s phase 3 and 4 that are expected to open in 2023 and 2024, respectively.

We have lowered our Morningstar Uncertainty Rating to High from Very High for the Macao gaming companies under coverage, as the removal of China’s COVID-19 restrictions from Jan. 8 should have removed the major hurdle that has been hindering Macao’s recovery over the past three years. Although it is likely that Macao and China will experience additional COVID-19 waves, which may cause demand to fluctuate, the evidence from other countries shows that the impact on the recovery trend was shorter and less impactful with each wave. We expect the same in Macao, and we have improved visibility around our existing base-case assumption that industry gross gaming revenue, or GGR, will return to 50% of 2019’s level, or MOP 145 million, in 2023, up from 14.4% in 2022. This is slightly higher than the Macao government’s estimate of MOP 130 million, reflecting a more upbeat outlook on the pent-up demand from both mainland China and Hong Kong.

Sands China is a strong contender in the Macao gaming sector with a strong presence in mass, retail, and non-gaming facilities and in Cotai. The company has a majority of its gaming tables located in Cotai, a popular tourist destination with a critical mass of world-class integrated resorts that continue to take market share from casinos in the Peninsula. Sands China used to place lower priority on the lower-margin VIP segment, which better positions it amid the regulatory risk on the VIP segment. To catch up to the rising demand from the premium mass segment, Sands Cotai Central was renovated, expanded, and rebranded to the Londoner in phases through 2022. This will help defend its market share from its biggest competitor, Galaxy’s phase 3 and 4 that are expected to open in 2023 and 2024, respectively.

As expected, the Macao government granted the fresh 10-year gaming concession to the six existing casino operators on a provisional basis. We think the announcement will remove many of the remaining concerns on casino licenses. Although detailed terms of the contracts haven’t been disclosed yet, including the investment pledged by each company and nongaming activities each company planned to develop, we don’t expect material risks toward the finalization of the license grants by the end of December, as Macao’s gaming law amendment has concluded, with major changes in line with majority opinions.

Narrow-moat Sands China’s weak third-quarter results were expected, and reflected the COVID-19 headwinds, with the loss on adjusted EBITDA widening to USD 152 million from USD 110 million in the quarter prior. Although near-term challenges persist, we believe the government’s plan to reinstate group tours and e-visa tourists in late October or early November will drive a meaningful recovery of the Macao gaming sector from 2023. We retain our long-term constructive outlook for Macao's gaming sector, but slightly revise down our assumption of the industry gross gaming revenue, or GGR, to 50% of 2019 levels in 2023 (from 60% in our earlier forecast), and we expect industry GGR to return to 90% of 2019’s level in 2024. The tweak is to reflect the challenges resulting from: 1) an extended zero-COVID-19 period, which may continue to disrupt traffic; and 2) slow economic growth that will likely weigh on customer spending and patron bet size. As such, we lower our fair value estimate of Sands China slightly to HKD 23.50 per share from HKD 24.50, and we think the shares are undervalued as of market close on Oct. 20.

Sands China is a strong contender in the Macao gaming sector with a strong presence in mass, retail, and non-gaming facilities and in Cotai. The company has a majority of its gaming tables located in Cotai, a popular tourist destination with a critical mass of world-class integrated resorts that continue to take market share from casinos in the Peninsula. Sands China used to place lower priority on the lower-margin VIP segment, which better positions it amid the regulatory risk on the junket VIP segment. To catch up to the rising demand from the premium mass segment, Sands Cotai Central was renovated, expanded, and rebranded to the Londoner in phases through 2022. This will help defend its market share from its biggest competitor, Galaxy’s phase 3 and 4 that are expected to open in 2022 and 2024, respectively.

Malaysia Genting Group’s participation in Macao’s gaming concession bidding surprised the market, which brings some uncertainty as to whether the existing players will win renewed licenses, given Genting’s strong presence in global gaming markets and successful track record in diversification of non-gaming business. Nevertheless, we think Genting’s bid is unlikely to threaten the existing players’ competitiveness in the tendering process, as the six have put two-decade efforts in supporting Macao’s economy and employment, which include more than two years’ downturn resulting from COVID-19 restrictions. We think it is unlikely for the Macao government to rule out any of the six, if they could meet the requirements of the new concession tendering process. As such, our base-case scenario is unchanged, which assumes all six existing casino operators would be granted new gaming concessions, and we keep our fair value estimates of Macao casino operators unchanged.

Sands China’s second-quarter LBITDA widened to USD 110 million from negative USD 11 million in the prior quarter, making it the worst quarter since Macao reopened its border with mainland China in September 2020. This was largely due to a number of city lockdowns in mainland China since March 2021, and Macao was also hit by a new wave of COVID-19 outbreaks since mid-June, leading to forced closure of casinos from July 11. We expect gaming revenue to remain at a depressed level in July. Although Macao plans to partially ease its COVID-19 lockdown measures and reopen casinos from July 23, we think China’s “zero-COVID-19” strategy and highly stringent anti-pandemic measures will continue to hinder Macao’s tourism demand and near-term visibility of a sustainable recovery of Macao is still low.