Lady luck looks away from Sands China

The casino operator’s revenue declined in last year’s fourth quarter as the Macao gaming sector’s post-pandemic rebound lost steam

Key Takeaways:

• Sands China reported its revenue fell 5% year-on-year in last year’s fourth quarter
• Ongoing renovations of about 1,400 suites in the company’s Londoner Macao property are expected to be complete by China’s May Day holiday

By Lee Shih Ta

The Chinese New Year holiday has traditionally been a lucrative time for Macao, as thousands of Mainland tourists flock to the city for both its tourist sites and casinos. But the city’s steady post-pandemic rebound has slowed rapidly of late, dragged down by China’s weakening economy and changing tourist demographics and gaming sector regulations, causing gaming companies to suffer as well.

As a sector leader, Sand China Ltd. (1928.HK) was a microcosm of the industry’s changing fortunes when it reported its revenue fell 5% year-on-year to $1.76 billion in last year’s fourth quarter, ending at just 79% of its pre-pandemic level from 2019. Its profit dropped by an even steeper 17.7% to $237 million over the same period. Its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell by 12.7% year-on-year to $571 million for the quarter, around 90% of the level from 2019.

The company attributed the fourth-quarter revenue drag mainly to an ongoing renovation of its Londoner Macao property, where less than 20% of the suites were in operation. A reduced win rate in its rolling-chip business didn’t help matters. But revenue from its non-rolling-chip and slot handle businesses performed better, reaching 93% and 102% of their 2019 levels, respectively, in the latest quarter.

On a property basis, Londoner Macao and Venetian Macao both saw their revenue drop by 12.1% to $518 million and 8.8% to $682 million, respectively. All other properties recorded gains, including a 2.7% rise at Parisian Macao to $228 million, 16.1% rise at the Plaza Macao to $223 million and a 6.2% rise at Sands Macao to $86 million.

Better than expected

Sands China generated total revenue of $7.08 billion for all of last year, up 8.4% from 2023, and a profit of $1.05 billion, up 52% from $690 million in 2023. Its adjusted EBITDA reached $2.33 billion, compared with $2.22 billion in 2023.

The revenue decline in its latest reporting quarter was narrower-than-expected given the large number of hotel suites under renovation. According to a UBS report, Sands China’s fourth-quarter EBITDA adjusted for rolling-chip win rates was $593 million, higher than market expectations for $563 million and UBS’ own forecast for $575 million, mostly due to better-than-expected revenue for the non-rolling-chip and non-gaming businesses.

UBS also projects that the remaining 1,400 suites still being renovated will be back on the market by the long May Day holiday later this year. That potential revenue booster, coupled with resumption of the company’s dividend payouts, led UBS to maintain its “overweight” rating on Sands China, with a target price of HK$24.80 per share.

Tourist flow uncertainties

Lower spending per tourist and slower gaming revenue growth have become problems facing Macao’s entire gaming industry. According to data from Macao’s Statistics and Census Service, spending per tourist averaged 2,168 patacas ($270) in the first three quarters of last year, down 17% year-on-year.

The slowdown in gaming revenue was even more significant. While the city’s gross gaming revenue for all last year rose by nearly 24% to 226.8 billion patacas, the growth was much slower than the 333.8% jump in 2023, according to data from Macao’s Gaming Inspection and Coordination Bureau. Moreover, gaming revenue in January this year dropped by 5.6% year-on-year to 18.25 billion patacas, missing expectations and registering a second consecutive monthly decline.

The slowing growth reflects sluggish consumer confidence on the Chinese Mainland, which supplies a majority of Macao’s visitors. The Macao government has set a revenue target of 240 billion patacas for the gaming industry in its 2025 fiscal budget, implying 6% year-on-year growth. The goal is rather conservative given last year’s impressive growth but could still face difficulties due to current market dynamics.

According to the Macao Government Tourism Office, just over 1 million tourists visited the city in the first six days of this year’s Chinese New Year holiday that began in late January, down 6.1% year-on-year. That included 760,000 visitors from the Chinese Mainland, down by a larger 8.3% year on year, and 184,000 from Hong Kong, down 3.2%. The Japanese city of Osaka’s upcoming World Expo between April and October is also expected to draw away more Mainland Chinese tourists that may have flocked to Macao during the May Day holiday and the National Day holiday in October.

Investor favorite

In a slowing broader market, Sands China is seen as better-positioned than its peers to adjust by using its abundant non-gaming resources.

As consumer spending falters, the company has been bolstering the quality of retail tenants in its properties with a view to positioning them as premium shopping destinations. The launch of Asia’s biggest AP House, a retailing concept from Audemars Piguet, in Sands China’s Shoppes at the Four Seasons is the company’s latest attempt in this new direction.

Sands China currently trades at a premium to its peers, boasting a price-to-earnings (P/E) ratio of 18.2 times, higher than Galaxy Entertainment’s (0027.HK) 17.5 times, Wynn Macau’s (1128.HK) 10.9 times, and just 8.9 times for MGM China (2282.HK).

Robert G. Goldstein, chairman and CEO of Sands China’s controlling shareholder Las Vegas Sands Corp. (LVS.US), expressed his enthusiasm about the company’s opportunities to deliver industry-leading growth in both Macao and Singapore in the years ahead as it executes its capital investment programs in both markets.

“In Macao, the ongoing recovery continues, although per-capita tourist spending remains below the levels reached prior to the pandemic,” he said. “We are committed to making investments to enhance the business and leisure tourism appeal of Macao and support its development as a world center of business and leisure tourism, which makes us take the lead in the recovery of tourism spending.”

To subscribe to Bamboo Works weekly free newsletter, click here