As high rollers stay home, Sands China bets on mass market to fill the gap

The casino giant’s revenue quadrupled last year on a strong post-Covid tourism rebound, as it returned to the black with a $690 million annual profit

Key Takeaways:

• Sands China returned to the black with a $690 million profit in 2023, reversing a loss of $1.58 billion the previous year
• The Macau-based casino operator committed to investing an additional $4.5 billion in capital and operating investment by 2032

By Li Shi Ta 

The tourist haven of Macau kicked off the Year of Dragon with a roar, as sites like its signature St. Paul’s Cathedral teemed with people eager to get out and about after earlier New Years of pandemic restrictions. The bumper crop of travelers over the holiday and also for most of last year also played well in the historic city’s casinos, which were some of the biggest victims during the pandemic years.

Gaming revenue in 2023 reached 183 billion patacas ($22.7 billion) last year, up 3.3 times from 2022 and about 62.6% of the pre-pandemic level from 2019, according to the city’s Gaming Inspection and Coordination Bureau. Revenue in the first month of 2024 rose further still by 67% to 19.34 billion patacas, exceeding market expectations for a 63% gain.

One of the biggest winners in the turnaround has been local leader Sands China Ltd. (1928.HK), which celebrated the Lunar New Year by reporting this month that it returned to the black in 2023.

The city’s entire gaming sector suffered one of its worst years ever in 2022, when its annual revenue dipped to just 42.2 billion patacas – the lowest level since 2004. But things quickly started to improve after China lifted its strict Covid travel restrictions in early 2023. 

As the gamblers returned, Sands China, the city’s leading casino resort operator, saw its net revenue more than quadruple to $6.53 billion year-on-year in 2023. The surge helped the company record a profit $690 million, reversing a loss of $1.58 billion in 2022. 

Sands China’s shares fell 3.7% the day after the announcement, and have moved steadily downward since then from a recent peak just after the Lunar New Year holiday this month.

The company pointed out its business rebounded rapidly last year after pandemic controls were lifted in December 2022 and January 2023. Its casino revenue rebounded the strongest, rising 411% to around $4.84 billion last year. Room revenue rose by a slower but still quite strong 314% to around $761 million, while mall revenue was up 45% to $513 million, and food and beverage revenue rose 258% to $240 million.

New rules of the game 

The Macau government, which enjoys a high degree of autonomy from the Chinese Mainland, similar to Hong Kong, rolled out a new casino law in 2022. In December that year it also awarded six new gaming licenses, marking the start of a new era for a city that has often been called the Las Vegas of Asia. Under the new rules, gaming agents were banned from the previous practice of pocketing a cut of gaming revenue from high-rollers they bought to the city, and instead could only collect a flat commission. 

Gaming companies are also being asked to take on more social responsibilities, invest more in non-gaming activities and support the development of local small businesses to promote a more diversified local economy. The six new licensees signed contracts with the government committing to spend a total of 118.8 billion patacas over the next decade, most of which will go to non-gambling activities. 

The bottom line is that Macau is trying to wean itself from dependence on gambling and create a more diversified local economy. At the same time, casino operators are also having to shift their focus from high-rolling VIPs to more mass-market gamblers.

According to local government data, of the city’s 54.1 billion patacas in gambling revenue in last year’s fourth quarter, around 80%, or 41.4 billion patacas, came from mass-market players, up 11.8% from the previous quarter and 4 times the year-ago amount. The latest mass-market spending also exceeded the pre-pandemic figure of 39.8 billion patacas in the fourth quarter of 2019. 

By comparison, VIP spending totaled just 12.7 billion patacas in last year’s fourth quarter. For the entire year VIP revenue also only reached 33% of the pre-pandemic level from 2019, showing that the mass market has been leading the industry’s comeback. 

Continuing the winning streak

Following last year’s rebound, casino operators and the local government are working together to try and keep their winning streak alive by boosting tourist flows. The government has announced a number of favorable policies to that end, and has also hosted major events to lure in tourists. It has also reached out to potential customers on the Chinese Mainland and in other Asian and European countries using various channels, yielding the type of strong results seen during the latest Lunar New Year holiday.

Official data show that during the official holiday period between Feb. 10 and Feb. 17, the city received more than 1.35 million visits, or nearly 170,000 per day. That was up about 160% from the previous year and almost back to pre-pandemic levels from 2019. The number of visits exceeded 210,000 on Feb. 12, the biggest daily inflow since the reopening and the second biggest daily inflow since record-keeping began. 

With the focus shifting from the VIP market to more mainstream visitors, gaming companies need to introduce more non-gaming activities and features to attract this group with more diversified interests. In his latest annual policy address, Macau Chief Executive Ho Iat Seng set a target of reaching 216 billion patacas in annual gaming revenue, which is roughly 18% higher than last year. 

Sands China Chairman Robert Glen Goldstein said his company remains bullish on the city’s future and sees Macau as an ideal market to increase capital investment. He committed an additional $4.5 billion to the city in capital and operating investment through 2032. The company also announced it will invest another $1.2 billion into the Londoner Macau project scheduled for completion in early 2025.

Morgan Stanley estimates Sands China will control about 27.3% of Macau’s mass gambling market this year, 8 percentage points ahead of the second-largest player, Galaxy Entertainment (0027.HK), underscoring its leading position in the move to the mass market. 

In terms of valuation, Sands China currently trades at price-to-earnings (P/E) ratio of 36 times, compared with Galaxy’s sky-high 632 times due to its much smaller profit level. The city’s gaming sector is off to a great start in the new year, as HSBC research points out, despite concerns about growing consumer caution as China’s economy slows. The bank said stocks from the broader sector look cheap with an enterprise value-to-EBITDA ratio of 11 times in 2024, and is optimistic about the outlook for Sands China and smaller rival Wynn Macau(01128.HK). 

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