Analysts at Deutsche Bank and Jefferies have reaffirmed Sands China’s solid results despite the prevailing negative sentiment towards Macau/China.
Commenting on the latest financial results of Las Vegas Sands (LVS), and considering the valuation and current sentiment towards Macau/China – which is largely viewed as negative, Deutsche Bank still sees ‘limited downside’ regarding shares at current levels.
Jefferies indicates that the Macau/China headwinds have already been reflected in Sands China’s stock price, which fell 30 percent from 2023 highs. Analyst Andrew Lee suggests that this is not company-specific, as the sector is under the same situation due to potential perceived headwinds centered on the China macro, the real estate markets, and weaker consumer spending. These factors, in turn, could negatively impact overseas travel.
Buy ratings
Jefferies gives a “Buy” rating to Sands China’s stock, noting that 2024 has started stronger than expected. Macau’s month-to-date gaming revenue stands at MOP619 million ($76.8 million) per day, representing 77 percent of the 2019 full-year average and higher than the monthly average for each month in 2023, except for October, at MOP629 million ($78 million) per day.
The broker assumes that Macau’s GGR could increase by 28 percent and 2 percent in 2024 and 2025, respectively, resulting in a daily run-rate of MOP640 million ($79.4 million) this year and MOP656 million ($81.4 million) in 2025.
This projection implies 80 percent and 82 percent of the 2019 pre-pandemic levels (versus MOP502 million ($62.3) per day for 2023).
Deutsche Bank also reaffirms its “Buy” rating for its US-parent Las Vegas Sands. The broker explains that the estimate revisions are mixed, with Macau modestly lower in 2024, while the Marina Bay Sands forecast is up.
Regarding Macau’s accelerated recovery, analysts Carlo Santarelli, Steven Pizzella, and Alfonso Straffon note that Macau’s mass table win of $1.41 billion recovered to 97 percent of 2019 levels. Slot win of $163 million was 102 percent of 2019 levels. VIP rolling chip volume was $6.02 billion, 40 percent of the 4Q19 level, though a lower hold caused VIP GGR of $130 million to represent just 24 percent of the 4Q19 result.
In addition, Deutsche Bank indicates that, relative to 2019, 2023 mass reinvestment, by its estimate, was 670 basis points above 2019 levels.
‘We note this directly impacts aggregate and departmental margins. As such, leveraging the investments to date, with greater mass GGR scale and presumably incremental base mass GGR, or, a less competitive mass market environment, should help to promote incremental margin expansion throughout 2024,’ note the analysts.
Management optimistic about Macau outlook
In an investment memo, Jefferies mentions that Sands China’s management remains optimistic about the Macau outlook, expecting ‘Macau to follow a similar pattern to Singapore’s recovery, with 4Q24 EBITDA from Singapore reaching a record quarterly high.’
Additionally, visitation trends are positive, with non-Guangdong (the province bordering Macau) visitors from China increasing to 86 percent of the 4Q19 level (compared to 72 percent in 3Q), and wealthier provinces recovering faster, especially those near the Yangtze River Delta. Management also notes a recovery from Southeast Asia visitors.
Londoner Phase 2 renovation
Deutsche Bank points out, according to the company’s management, that the Londoner Phase 2 renovation – commenced in November last year with completion slated for the 2025 Chinese New Year – will result in primary disruptions in 2H24.
However, The Londoner is expected to be the most profitable property in the future.
The Phase 2 renovation of the property is expected to cost an incremental $1.2 billion, which is 20 percent higher than the previously revealed $1 billion cost.
