Reiterating the “purchase” of Sands, corresponding to 25-year EV/EBITDA 12x

We reaffirm the “purchase” of Sands China (1928 HK). The target price was raised from HK$19.5 to HK$24.7, corresponding to the 25-year EV/EBITDA 12x, which is equivalent to the average valuation level of the Las Vegas gaming sector and the US high-end hotel industry. The main reason for this increase: 1) The Sands renovation is about to be completed, and customers previously diverted due to the refurbishment will return one after another. Its Sheraton Hotel will be converted into a high-end Marriott Hotel (Macau Londoner's Famous Place), creating a synergy with two other Londoner hotels, among which the casino has also reopened. Also, the Cotai Arena will be renovated in December and will debut on December 14; 2) We also believe that the company may restart dividends early. If it maintains the previous dividend rate of about 5%, the 25-year dividend payment is calculated at the current price, or up to HK$1; 3) the poor stock price performance and low capital allocation may need to be made up in the future.

The Sands renovation is about to be completed, and the lost ground may be recovered

The Golden Sands renovation is about to be completed. After completing its historic mission, its Sheraton Hotel will be transformed into the first Luxury Collection Hotel under the Marriott brand (Macau London People's Club) to create 2,405 new guest rooms and suites for high-end travelers. Some suites provide private terraces, dedicated children's rooms, media rooms, and private pools, which can have a synergy effect with two other Londoners. Meanwhile, the casino in the original Sheraton has also reopened. Along with the main performance venue, the Cotai Arena, will be renovated and renamed the Venetian Coliseum in December. Famous singer Charlie Puth, who has won many Grammys, will perform for their debut on December 14. Previously, due to the loss of property renovation share, we believe that as the renovation is completed and Sands reception capacity increases, the share is expected to gradually be recovered.

It is expected that dividend payments will be restarted early. As a leading valuation, it is comparable to US stock hotels. We believe that with the completion of the renovation and the return of business to the right track after the pandemic, dividend payment expectations may be brought forward. Sands China stopped paying dividends during the pandemic. Previously, a dividend of HK$1.99 per share was paid every year since 2014. If the previous dividend rate of around 5% is maintained, the 25-year dividend will be calculated at the current price, or around HK$1. We believe that the gaming sector in Macau is undergoing structural changes from high-end to midfield customers and a shift towards leisure and entertainment. Therefore, the valuation should be closer to Las Vegas (Bloomberg unanimously expected EV/EBITDA 8.6x in '25), which is mainly tourism-oriented and gaming-assisted. However, Sands is one of the industry leaders. The valuation should be worth a certain premium, and has the largest number of hotel rooms. It should also move closer to the US high-end hotel industry (Bloomberg unanimously expected EV/EBITDA 16.1x in '25). So we gave the company 25 years of 12x EV/EBITDA.

Superstar Ding Cai Liangwang. This National Day Macau Gaming is not the same as before. The momentum may continue. Macau Gaming may continue to show the good trend of “Ding Cai Liangwang” during the National Day holiday. The 7-day holiday welcomed more than 0.99 million visitors, recovering to 119% in '19. According to preliminary data, the average daily gaming revenue for the first six days of October was close to the 19-year level, and also achieved year-on-year growth. We believe it was mainly driven by high-end midfielders. In view of the fact that the big guest Andy Lau came to sing during the National Day, it attracted middle-aged and elderly high-spending male customers. Contrary to tradition, superstars are often invited during the off-season to average traffic and gaming revenue. We believe that overall gaming revenue in October will exceed summer vacation levels, and we also expect a series of favorable policies to be introduced in the future.

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