An analyst from investment bank Morgan Stanley has revised down Sands China’s 2024 EBITDA forecast to $2.4 billion, an 8 percent decrease, due to lower market share.
In an investment memo issued subsequent to the announcement of Sands China’s parent company’s first-quarter results, Morgan Stanley notes that the adjustment stems from lower 2024 estimates of mass market share, as the brokerage reduced its market share estimates for the mass market from 26.4 percent to 24.8 percent.
The latest market observations indicate that Sands China held a 25.6 percent share of the mass market in 1Q24, compared to 27.1 percent in 2023.
Despite lowered expectations, the adjusted EBITDA forecast still implies a 14 percent year-on-year increase, reaching approximately 78 percent of 2019 levels.
Analyst Praveen Choudhary indicates that the EBITDA forecast cut is ‘partly offset’ by lower operating expenses and reinvestment rate expectations. The 2024 earnings per share (EPS) are 14 percent lower after adjustment.
Regarding dividends, the brokerage cuts 2024 estimates of dividend per share (DPS) from HK$0.75 to HK$0.5, resulting in stocks yielding about 2.6 percent.
‘We believe the company will prioritize capital expenditure and the $1.8 billion bond maturing in August 2025. We have reduced our 2025 EBITDA estimate by 3 percent to $2.9 billion (94 percent of the 2019 level).’ The analyst notes that this reflects lower mass market share, as the Phase 2 renovation of The Londoner Macao disruptions may extend into 2Q25.
According to the company’s management, renovation projects at Sheraton Grand Macao are currently in progress, while The Londoner Macao’s second casino is slated for a revamp starting in May. Sands China cautions there will be potential disruptions to its product offerings throughout 2024.
Net revenues at The Londoner Macao declined from $589 million to $562 million in the first quarter of the year, attributed to a reduction of up to 600 hotel rooms due to ongoing renovation efforts.
The Phase 2 renovation of The Londoner Macao, amounting to $1 billion, is in addition to the $2 billion invested in Phase 1. This phase encompasses the Sheraton, with Sands verifying that the hotel’s initial tower will be finished by year’s end, and its second tower by May 2025.
Sands China’s estimated EPS for 2025 will also see a 4 percent reduction. Consequently, the brokerage increases its 2025 DPS estimate to HK$1, potentially raising the yield to 5.3 percent. Overall, Morgan Stanley maintains largely unchanged estimates for 2026.
