Bernstein named LVS and Sands China stocks as the “Best Idea” for 3Q2022 on Singapore’s leading Asia gaming market recovery as well as the risk-reward attractive for Macau to benefit investors in the third quarter.
“LVS and Sands China are our Best Ideas as we close at the end of Q3. We rate both stocks Outperform with a price target of US$53.00 for Las Vegas Sands, and HK$28.00 for Sands China, indicating 39 percent and 62 percent upside, respectively,” the report read.
The brokerage envisages a compelling investment opportunity for Sands China with the risk or reward for Macau over the next 12 plus months looking very attractive with concession risks largely eliminated, and a phased-in reopening of Macau travel as China comes out of Zero-Covid in 2023.
Las Vegas Sands is expected to get a further boost from Singapore’s recovery.
Macau
Macau’s Gross Gambling Revenue is at rock bottom due to multiple COVID outbreaks in China and Macau over the past few months.
“Macau yet remains an attractive entry point with limited downside risk,” the brokerage report emphasized
With concession and regulatory risks being largely limited and zero-COVID most likely going away at some point, the brokerage estimates upwards revenue momentum starting from 4Q22, and potential positive surprise in spring 2023 as China likely begins to relax its zero-COVID policy.
Bernstein’s long-term thesis is driven by expected secular growth in Mass, with Sands being well positioned to succeed in both premium mass, especially with new products, and in high margin base mass and retail, where it has always been the top operator.
Brokerage is positive on Sands China maintaining its leading Macau position retaining 30 percent market share, assuming full resumption of travel by end of FY23. Bernstein forecasts FY24 and FY25 EBITDA to be above FY19 levels.
Singapore
Marina Bay Sands had delivered better than expected second-quarter results with an EBITDA run-rate of $1.2 billion as against $1.7 billion at a historical peak level.
The property recorded the best mass and VIP volume since COVID, with slots even stronger than pre-COVID.
With Singapore fully transitioning into “Living with COVID,” almost all travel barriers and social distancing measures are now eliminated. Monthly passenger traffic at Changi Airport reached 56 percent of pre-pandemic levels in July, with June REVPAR in the Singapore market above June’19 level.
“Singapore’s recovery has taken off with further acceleration forthcoming,” Bernstein emphasized.
“We expect business activity to continue ramping up at MBS during the rest of the year and into 2023. We forecast MBS EBITDA to reach over 90% of 2019 in FY23 and grow from there and set up for a further increase once Phase 2 expansion is completed and drawing in more customers,” the brokerage report remarked.
Liquidity
“Both companies are solid on liquidity front and have a strong credit profile to sustain and whether any kind of market uncertainties,” the brokerage report remarked.
LVS has ample liquidity with consolidated cash of $6.5 billion and total liquidity of $9.5 billion.
LVS (ex-Macau) has no debt maturing until 2024, while Sands China has no debt maturing until 2025.
Including the $1 billion LVS shareholder loan and own liquidity, Sands China has no issue meeting new concession capital requirements and “can run 14 months in a pessimistic zero revenue environment and 3 years with zero EBITDA in Macau,” the report read.
An additional long-term uptick from the future high returns on investment projects and return of capital is considered by the brokerage as one positive in the metrics.
LVS completed the sale of its Las Vegas operations in February, with after-tax proceeds of $4.4 billion plus $1.2 billion in deferred payment.
The brokerage does not expect any major investments in the near term outside of Singapore, but the liquidity and dry powder at LVS create some investment optionality and an eventual return of capital to shareholders, the report read.
