1Q24 results fall short of consistent expectations
On April 18, Sands China announced 1Q24 results through parent company Sands Group: net revenue of US$1,811 million, recovering to 78% of 1Q19 (up 42% year on year, down 3% month on month); adjusted property EBITDA was US$610 million, recovering to 71% of 1Q19 (up 53% year on year, down 7% month on month), falling short of Bloomberg's agreed expectations of US$665 million.
We attribute Sands China's performance to: 1) poor profitability in the VIP business; 2) the ongoing construction of the Londoner and Cotai Arena disrupted business volume; 3) the decline in the overall market share of Londoner and Four Seasons Hotel General Expo (7.6% and 2.0% in 1Q24, compared to 8.3% and 2.5% in 4Q23); and 4) a 26% month-on-month decline in mall revenue.
Development trends
Highlights of the management performance meeting are as follows:
1) Management attributed poor performance to the Cotai Arena (expected to be completed in 4Q24) and the Londoner Phase 2 renovation project (expected to be fully completed in 1H25); 2) The Londoner 500-600 hotel rooms were renovated in 1Q24, and the company expects more hotel rooms to stop operating every quarter before completion. The first hotel building renovation project will be completed in 2024, and the second hotel building renovation project will be completed on 1H25; 3) High-end midfield (whose profit returns to 1Q19 will increase 91% from the previous quarter) 2%) Expected to continue Driving the recovery of the industry, ordinary midfielders (whose earnings returned to 96% in 1Q19, down 2% month-on-month) are expected to continue to grow, mainly driven by transportation infrastructure and non-gaming projects.
Profit forecasting and valuation
We maintain our adjusted EBITDA forecasts for 2024 and 2025. The current share price corresponds to 8 times 2024 EV/EBITDA. We maintain our outperforming industry rating. In view of the decline in the industry's valuation center after the pandemic, we lowered our target price by 6% to HK$32.00, which corresponds to 13 times the 2024 EV/EBITDA, with 69% room for growth compared to the current stock price.
risks
The recovery is likely to be slower than expected; market share may be lost due to increased competition in the industry.