2Q21 adjusted property EBITDA exceeds market expectations
880.HK disclosed 2021 results: net income was HK $2.744 billion, up 207 per cent from a year earlier and up 11 per cent from a month earlier, while an adjusted loss of HK $191 million for EBITDA (a loss of HK $784 million for 2Q20 and a loss of HK $319 million for 1Q21) was better than the market consensus of about HK $280 million. We believe that the improvement in the company's performance is mainly due to the increase in the number of visitors to Australia and the strong performance of the midfield business (159% month-on-month growth in midfield earnings).
Trend of development
On the performance call, the management said:
1) it is observed that after the epidemic in Guangdong has been brought under control, the recovery in July 2021 is strong (close to the level of May 2021); 2) it is believed that the Chinese government will be able to control the recent outbreak in Nanjing, but it is believed that the recent operating performance will be relatively weak, mainly due to the new local cases in Macao on August 3.
The Upper Lisboa Resort, which partially opened on July 30, 2021, has opened facilities including nearly 150 new midfield tables, 661 slot machines and seven restaurants. At the same time, 504 of the 1350 hotels in the resort are already in operation, with the rest expected to be open by the end of 2021. The company expects the Palazzo Versace and Karl Lagerfeld hotel hotels, each with 271 hotel rooms, to open in 2022. The average daily operating cost of the resort is about HK $4.8 million and will reach HK $9 million when it fully opens, management said on a conference call. Management will then move some of the gaming tables from other existing properties to the Upper Lisboa Resort and gradually increase the number of slot machines according to the recovery of the market. Earnings forecast and valuation we downgrade the 2021 net income forecast by 38%, and expect the adjusted EBITDA to be a loss of HK $1.089 billion in 2021 (previously a profit of HK $402 million); the net income in 2022 is reduced by 11% EBITDA 7%, based on the fact that the Lispas Resort opened later than expected and the recurrence of the epidemic in Greater China. The current share price is HK $6.70 (corresponding to 9.8 x 2022e EV/EBITDA). We maintain our neutral rating and target price of HK $8.80 (corresponding to 12x 2022e EV/EBITDA), which is 31.3% upside from the current share price.
Risk.
The COVID-19 epidemic intensified; the volume of the Lisboa Resort was slower than expected.