20171130-交银国际证券-金沙中国有限公司-01928.HK-VIP_growth_offers_bonus_upside_5页_924kb

Sands China (1928 HK) Summary

Core Content

Sands China is a 70% subsidiary of Las Vegas Sands and a leading operator in the Macau gaming sector. The company has a strong presence with 5 casinos in Macau and a large non-gaming portfolio, including over 12,000 hotel rooms, 1.7 million sqft MICE (Meetings, Incentives, Conferences, Exhibitions) and 1.5 million sqft retail spaces. It is the largest mass market operator in Macau and the largest in terms of gaming revenue.

Financial Highlights

• Revenue (US$m): 7,752 (2015), 6,652 (2016), 8,521 (2017E), 9,212 (2018E), 9,405 (2019E)
• YoY growth (%): -30.6 (2015), -14.2 (2016), +28.1 (2017E), +8.1 (2018E), +2.1 (2019E)
• Net profit (US$m): 1,459 (2015), 1,224 (2016), 1,589 (2017E), 1,916 (2018E), 2,101 (2019E)
• EPS (HK$): 1.40 (2015), 1.18 (2016), 1.53 (2017E), 1.84 (2018E), 2.02 (2019E)
• P/E (x): 27.4 (2015), 32.6 (2016), 25.1 (2017E), 20.9 (2018E), 19.0 (2019E)
• P/B (x): 6.8 (2015), 8.0 (2016), 8.9 (2017E), 9.2 (2018E), 9.4 (2019E)
• Dividend yield (%): 5.18 (2015), 5.18 (2016), 5.21 (2017E), 5.47 (2018E), 5.73 (2019E)

Key Performance and Trends

• VIP Growth: Sands China has made a significant surprise recovery in the VIP segment, with a 38% QoQ increase in VIP volume in 3Q17, outperforming the sector average of +8%.
• Parisian Success: The successful rollout of VIP business at Parisian contributed significantly to this growth, with an 85% QoQ increase in volume.
• Market Share: Maintains a leading position in the mass market, with a strong recovery in VIP share.
• Growth Projections: Expected to see 14% YoY growth in VIP revenue and 7% in mass gaming revenue for 2018E. EBITDA is projected to grow by 8% YoY.
• Dividends: The company maintains a generous dividend payout, with a dividend yield of 5.73% in 2019E. The payout ratio, although above 100%, is fully covered by free cash flow.
• Valuation: The target price is raised to HK$42.00 from HK$41.00, based on a 17.2x 2018E EV/EBITDA multiple, which is at +1SD vs. historical average.
• Net Debt: As of end of June 2017, net debt is over HK$22bn, but Sands has a larger balance sheet than Wynn Macau and Melco, giving it more flexibility in extending junket credits.

Financial Ratios

• EBITDA margin (%): 28.7 (2015), 33.7 (2016), 29.5 (2017E), 29.3 (2018E), 30.8 (2019E)
• Net margin (%): 18.8 (2015), 18.4 (2016), 18.7 (2017E), 20.8 (2018E), 22.3 (2019E)
• ROE (%): 32.8 (2015), 30.5 (2016), 43.8 (2017E), 57.7 (2018E), 66.6 (2019E)
• ROA (%): 34.1 (2015), 32.6 (2016), 48.1 (2017E), 64.4 (2018E), 74.6 (2019E)
• EV/EBITDA (x): 18.9 (2015), 19.2 (2016), 17.2 (2017E), 15.9 (2018E), 14.8 (2019E)
• Payout ratio (%): 141.9 (2015), 169.1 (2016), 130.7 (2017E), 114.1 (2018E), 109.0 (2019E)
• Net gearing (%): 35.9 (2015), 61.5 (2016), 68.5 (2017E), 68.0 (2018E), 64.9 (2019E)

Stock Data

• Last Closing (HK$): 38.40
• Upside (%): +9.4%
• Target Price (HK$): 42.00↑
• 52w High (HK$): 41.85
• 52w Low (HK$): 31.25
• Market Cap (HK$ m): 310,024
• Issued Shares (m): 8,074
• Avg Daily Vol (m): 13.32
• 1-mth Change (%): 5.21
• YTD Change (%): 13.95
• 50d MA (HK$): 38.05
• 200d MA (HK$): 35.91
• 14d RSI: 55.26

Analyst View

• Rating: Buy
• Reasons for Buy:
  • Solid growth from both VIP and mass market segments.
  • Strong recovery in VIP share, outperforming the sector.
  • Expected to maintain a premium valuation due to strong earnings and generous dividends.
  • The company has more room to extend junket credits due to a larger balance sheet.
  • Despite new casino openings, it is expected to maintain its growth trajectory.
  • Dividends are fully covered by free cash flow, and there is room for 4-5% annual growth in payout if assuming 100% FCF payout.

Earnings Revisions

• EBITDA 17E (US$ m): 2,531 (Old) → 2,511 (New) → -0.8%
• EBITDA 18E (US$ m): 2,662 (Old) → 2,704 (New) → +1.6%
• EBITDA 19E (US$ m): 2,797 (Old) → 2,893 (New) → +3.4%
• EPS 17E (HK$): 1.88 (Old) → 1.53 (New) → -18.5%
• EPS 18E (HK$): 1.79 (Old) → 1.84 (New) → +2.7%
• EPS 19E (HK$): 1.77 (Old) → 2.02 (New) → +14.3%
• DPS 17E (HK$): 2.00 (Old) → 2.10 (New) → +5.0%
• DPS 19E (HK$): 2.00 (Old) → 2.20 (New) → +10.0%

Conclusion

Sands China is expected to maintain its leading position in the Macau gaming sector, with a strong recovery in the VIP segment and continued growth in the mass market. The company is projected to have solid financial performance in 2018E with 14% and 7% YoY increases in VIP and mass gaming revenue, respectively. The increase in EBITDA and EPS is anticipated, with the company expected to maintain a premium valuation due to its strong earnings and generous dividend policy. Despite a high net debt, the company's larger balance sheet allows for greater flexibility in extending junket credits, and it is expected to maintain its position as the least volatile operator among the six. The target price is raised to HK$42.00, reflecting the company's strong fundamentals and growth potential.