Sands China: Maintaining purchases, target price of HK$19.5, corresponding to a 25-year EV/EBITDA of 10x Hong Kong shares, the parent company of Sands China, released 24Q2 earnings on July 24, US time. Sands China's net revenue was 1,754 million US dollars, +7.7% year over year, -3.1% month on month; adjusted EBITDA was 561 million US dollars, +3.7% year over month, back to 73.3% in 2019; eBitdamargin was 32%, lower than 19Q2/23Q2 36.1%/33.2%/33.7% of /24Q1. 24Q2 Sands China did not pay dividends. Due to continued sluggish performance, parent company LVS fell -3.6% after the market.

We reduced the company's gross gaming revenue in 24/25/26 from HK$54.7/63.4/74.6 billion to HK$53.5/60.3/69.3 billion, to 80%/90%/103% in 2019, adjusted EBITDA of 18.5/21/24.8 billion to 75%/85%/100% in 2019, and the EBITDA margin was 32.8%/33.2%/34.0%.

The 24Q2 VIP and midfield recovery falls short of the industry. The improved revenue from property refurbishment is expected to reflect LVS's guidance for the Venetian's Cotai Arena renovation to resume opening in November 24, while the Londoner Sheraton Phase 1 and 2 renovations will be completed in 24Q4 and May 25 respectively. At that time, Sands's reception capacity is expected to improve, but performance during the renovation period was affected by low traffic, and the VIP and midfield businesses fell short of the industry's recovery. Sands China's 24Q2 gaming gross revenue was 1,710 million US dollars, +13.8% year over year, flat month-on-month, recovering to 81.2% in 19Q2, exceeding 77% of the industry's recovery. Among them, VIP gross revenue was $179 million, recovering to 32% (38% of the industry), -1.6% YoY, +39.8%; midfield gross revenue of 1365 million dollars, recovering to 98% (industry 114%), +16.7% YoY, -3.5% month-on-month; gross slot machine revenue of 166 million dollars, recovering to 103.3% (86% of the industry), +9.9% YoY and -1.2% month-on-month. The month-on-month decline in gross revenue from non-VIP businesses may have led to a loss of the company's overall share.

The recovery of non-gaming was dragged down by property renovations. EBITDA margins all declined month-on-month. Sands 24Q2 EBITDA margin was also relatively low. Mainly, Zhang Xueyou's concert in the same period last year brought in some traffic, but due to the recovery in performance being greatly affected by property refurbishment, EBITDA margin also declined month-on-month. As the “pillar” of Sands, Venetian's 24Q2 net revenue was 686 million dollars, accounting for 39% of the overall net revenue, after an adjusted EBITDA of 262 million dollars, recovering to 78% in 2019. EbitDamargin was 38.2%, compared with 39.3%/38.6%/40.7% lower than 19Q2/23Q2/24Q1; Londoners 24Q2 net income was 444 million dollars, EBITDA 103 million dollars, EBITDA margin was 23.2%, compared to less than 25.6%/30.6% of 23Q2/24Q1. The company will pledge to invest at least 4.5 billion US dollars in Macau by 2032, of which 93% will be used for non-gaming projects; it will commit a total capital expenditure of 3.4 billion US dollars, of which 0.7 billion US dollars will be spent on Sands China in 24 years.

The number of visitors to Australia in the first half of the year met expectations, but can the gaming industry expect Ding Cai to prosper in the future?

Compared to the Macau government's estimate of 33 million visitors to Macao in '24, the 24H1 visitors have already surpassed half of expectations, reaching 16.72 million, returning to 82.4% in '19, with mainland tourists as the main force. Among them, 0.604/0.343 million visitors arrived during the May 1st and Dragon Boat Festival holidays, recovering to 76%/87% respectively in '19, with an average of 0.121/0.114 million per day, exceeding 0.098/0.095 million in the same period last year. Furthermore, Macau currently has a total GGR of 113.8 billion Australian dollars, which also exceeds half of the government's estimate of 216 billion Australian dollars. Both the number of visitors and the recovery of the gaming industry are expected to meet government expectations. We expect the industry GGR to return to 79%/86% in '19, or A$231/252.1 billion, while VIP GGR and midfielder and slot machine GR will return to 34%/36%, 118%/130% in '19.

Risk warning: Policy implementation falls short of expectations, estimates are erroneous, and competition in overseas gaming markets is intensifying.