Sands China’s Weak Q3 Well Expected, Eyes on the Progress of E-Visas and Group Tours

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.