2Q24 results fall short of market expectations

On July 25, Sands China announced 2Q24 results through parent company Sands Group: net revenue of 1.754 billion US dollars, recovering to 82% of 2Q19 (up 8% year on year, down 3% month on month), adjusted property EBITDA of 0.561 billion US dollars, recovering to 73% of 2Q19 (up 4% year on year and down 8% month on month), falling short of Bloomberg's agreed expectations of $0.583 billion.

We attribute Sands China's performance to: 1) The Londoner and Cotai Arena are being renovated, the Londoner gaming area has been closed since May, and about 1,500 hotel rooms have gone offline in 2Q24; 2) the midfield and slot machine sales have recovered to 92% and 103% of 2Q19, respectively.

Development trends

Key points of the management performance meeting are as follows:

1) Management anticipates that 2H24's business volume will still be disrupted. Given that management expects the Venetian Cotai Arena, Londoner Phase I, and Londoner Pacifica Casino (closed in May 2024) to be completed and reopened at the end of 2024, while Londoner Phase II will reopen in May 2025; 2) Management has noticed a trend of business differentiation. The high-end midfield continues to be strong, and the average midfield's performance is weak, despite the government's introduction of a series of positive travel policies (such as adding 10 new mainland cities to open “individual travel” to Hong Kong and Macau) However, the number of visitors to Australia was still weak due to seasonality; 3) High-end midfielders (returning to 106% in 2Q19, down 4% from the previous month) continued to lead the industry's recovery, while regular midfielders (returning to 91% in 2Q19, down 3% from the previous month) were affected by the closure of Londoner's Pacific Casino.

Profit forecasting and valuation

We lowered our 2024 and 2025 adjusted EBITDA forecasts by 3% and 2% to $2.488 billion and $3.0 billion, respectively, based on the impact of Londoners refurbishment projects on the company's business. The current stock price corresponds to 9 times 2024 EV/EBITDA and 7 times 2025 EV/EBITDA. We maintained our outperforming industry rating, but lowered our target price by 15% to HK$22.80 based on profit forecast adjustments and valuation revisions, corresponding to 12 times 2024 EV/EBITDA and 9 times 2025 EV/EBITDA, with 47% upside 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.