Sands China Earnings: Strong Recovery Continues; Fair Value Estimate Raised 6%

We raise our fair value estimate of Sands China 01928 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 managing labor constraints. In the second quarter, it operated about 10,700 rooms, or 89% of its hotel room capacity, and is bringing the remaining rooms online by end-July, just right before the summer peak season. 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 continued demand recovery. In addition, Sands China has committed to invest at least USD 3.8 billion in Macao through 2032, including new investment in meetings, incentives, conferences and exhibitions; iconic tourism attractions; and the development of an overseas marketing strategy to promote Macao. This would further strengthen its leadership in Macao, buttressing its intangible asset advantage.