Key points of investment
In 1Q24, Sands China achieved total revenue of US$17.1 billion, recovering to 73.2% in the same period in '19.
Among them, VIPs/midfielders (including slots) achieved revenue of US$13/1.58 billion, respectively, and recovered to 19.3%/94.5% in the same period of 2019 (referring to the data caliber of the Expo Regulatory Bureau, industry VIPs/midfielders (including slots) recovered to 38.6%/110.3% in the same period in '19, respectively).
Sands China's net earnings for 1Q24 fell short of Bloomberg's agreed expectations. 1Q24 achieved net revenue of $1.81 billion (slightly lower than Bloomberg's agreed estimate of $1.86 billion), down 2.8% month-on-month, and recovered to 77.6% in 1Q19. Among them, the gaming/non-gaming business contributed US$1,37/40 million respectively, leveling/falling 10% from the previous month, and recovered to 72.7%/98.2% in the same period in 2019. The decline in the non-gaming business was obvious, mainly due to the company's 15,000 seat Cotai Arena and the upgrade beginning in January 2024. As a result, the 1Q24 company only carried out 12 entertainment events, a significant decrease from 31 games in 4Q23.
1Q24 Sands China's adjusted property EBITDA fell short of Bloomberg's agreed expectations. 1Q24 achieved adjusted property EBITDA of US$610 million (slightly lower than Bloomberg's agreed estimate of US$640 million), a 6.7% month-on-month decline, returning to 71.1% in the same period in 2019. The company's adjusted property EBITDA profit margin fell 3.1 pct to 33.7% from the same period in '19. We believe the main reason is that revenue growth is slower than expected, and the leverage pressure on the company's operations still exists. Looking ahead to 2024, we expect the company's adjusted EBITDA profit margin to remain stable, mainly for the following reasons: 1) The number of mainland Chinese visitors entering Macau in January-January '24 only recovered to 89% of the same period in '19, and there is still some room for recovery. The continued recovery of inbound visitors will contribute to the company's high-profit midfield business; 2) The temporary closure of the Cotai Arena will have a certain impact on the high-profit non-gaming business.
The Londoner Phase II and Cotai Arena renovation project are expected to have a certain impact on the company's 24-year performance. The renovation of the first building of the company's Sheraton Hotel has begun. About 500-600 guest rooms were temporarily closed in 1Q24 (accounting for about 14% of the number of rooms at the Sheraton Hotel in median terms, accounting for 4% of the company's total number of rooms), and it is expected that more rooms will be temporarily closed in 2Q-3Q. The company expects the renovation of the first hotel building to be completed by the end of '24, while the second hotel building is expected to be completed before May 1st Golden Week in '25. The renovation of the Cotai Arena is expected to be completed in November 2024. Additionally, the renovation of the gaming area near the Sheraton Hotel will begin in May '24 and is expected to be completed in December '24. The company believes that the above renovation projects will have a certain impact on the company's short-term performance, but will help enhance the company's long-term competitiveness.
Profit forecast and investment rating: We expect the company's net revenue for 2024-2026 to be US$79.5/85.2/US$90.2 billion, respectively, and the adjusted property EBITDA is estimated to be US$27.7/30.3/3.30 billion, respectively. The current stock price corresponds to 2024-2026 EV/EBITDA of 9.6/8.8/8.1 times, respectively. Our target price is HK$30.7, maintaining a “buy” rating.
Risk warning: China's macroeconomic growth fell short of expectations, Macau's tourism recovery fell short of expectations, the overseas gaming market was diverted, and Macau's gaming supervision policy became stricter.