20160726-美银美林-2Q_results_beat_by_3__thanks_to_solid_margin_improvement_15页_863kb

Sands China 2Q16 Financial Summary and Analysis

Core Content

Sands China Ltd. reported its second-quarter 2016 results, highlighting both strong performance and challenges in specific areas. The company's adjusted property EBITDA was US$488 million, which exceeded expectations by 3%. However, adjusted EBITDA after corporate expenses was US$432 million, missing estimates by 3% due to non-recurring legal costs. Net revenue for the quarter was US$1,480 million, slightly below estimates due to poor VIP performance and a low win rate.

Despite the challenges in VIP performance, Sands China demonstrated a solid margin improvement. Adjusted property EBITDA margin expanded by 160 bps YoY to 33.3%. Mass market revenue was down 4% QoQ, but still slightly higher than 4Q15, with the company experiencing its first YoY increase in June since 2014. The hotel segment remained under pressure, with RevPAR declines at Venetian and Sands Cotai Central.

Retail rent showed positive growth, increasing by 8% YoY and 2% QoQ to US$96 million, which was a positive surprise in a competitive environment. The company also announced the official opening date for Parisian as Sep 13, with a budget increase to US$2.9 billion. Sands plans to shift 3,500 employees to Parisian, expecting annualized cost savings of US$140 million.

Main Points

• Financial Performance:

  • Adjusted property EBITDA for 2Q16 was US$488 million, beating estimates by 3%.
  • Adjusted EBITDA after corporate expenses was US$432 million, missing estimates by 3% due to legal costs.
  • Net revenue was US$1,480 million, missing estimates by 1% due to poor VIP performance and low win rate.

• Margin Improvement:

  • Adjusted property EBITDA margin improved to 33.3%, reflecting strong cost control.
  • Overall GGR declined 13% QoQ, but the decline was less severe than the industry’s 8% QoQ.

• Segment Performance:

  • VIP Segment: Continued underperformance, contributing less than 10% to EBITDA.
  • Mass Market: Declined 4% QoQ but showed YoY growth in June, attributed to higher visitation.
  • Hotel: Under pressure with RevPAR declines of 12% YoY at Venetian and 7% YoY at Sands Cotai Central.
  • Retail: Rent increased by 8% YoY and 2% QoQ to US$96 million, showing resilience.

• Project Parisian:

  • Officially opens on Sep 13, with all facilities including 3,000 hotel rooms and 400 tables.
  • Budget increased to US$2.9 billion.
  • Expected to generate annualized cost savings of US$140 million.

• Investment Outlook:

  • The stock price objective was raised to HK$33.50, reflecting better-than-expected results.
  • The stock is trading at 14.2x 2017E EV/EBITDA with a 7% yield.
  • The company has received consent to extend its term loans to May 31, 2022, offering flexibility for maintaining dividends.

Key Information

• Price Objective: HK$33.50, up 4% from previous estimate.
• Dividend Yield: 7%.
• Free Cash Flow Yield: 5.95% for 2017E.
• Net Debt-to-Equity Ratio: 89.2% for 2017E.
• Interest Cover: 11.0x for 2017E.
• Return On Equity (ROE): 30.6% for 2016E.
• Return On Capital Employed (ROCE): 16.8% for 2016E.
• EBITDA Margin: 32.0% for 2017E.
• Net Debt: US$3,894 million for 2017E.
• Free Cash Flow (2017E): US$1,754 million.

Investment Rationale

Sands China is considered a relatively preferred name due to its defensiveness and lower exposure to VIP. It has the highest recurring cash flow-to-committed capex ratio among peers, which positions it well for a mass-focused market. The company's 10,000 room inventory supports its ability to capture mass market revenue.

Key Tables Summary

Table 1: 2Q16 Results

• Total Net Revenues: US$1,476 million, down 1% YoY.
• Total Adj. Property EBITDA: US$487.9 million, up 3% YoY.
• Adjusted EBITDA after corporate expenses: US$431.6 million, down 3% YoY.

Table 2: Revenue Breakdown by Property

• Sands Macao: US$185 million, down 23% YoY.
• Venetian Macao: US$666.1 million, down 10% YoY.
• Plaza: US$125 million, down 39% YoY.
• Sands Cotai Central: US$473 million, down 14% YoY.
• Parisian: US$0 million in 2Q16, but expected to show significant growth in future quarters.

Table 3: EBITDA Breakdown by Property

• Sands Macao: US$48.6 million, down 26% YoY.
• Venetian Macao: US$244.4 million, down 4.4% YoY.
• Plaza: US$43.7 million, down 41.2% YoY.
• Sands Cotai Central: US$144.1 million, down 12.1% YoY.
• Parisian: Expected to show a 306% YoY increase in 2017E.

Table 4: Venetian Property Model

• VIP Revenues: US$187.5 million in 2Q16, down 20.0% QoQ.
• Mass Market Revenues: US$411.0 million, down 5.7% QoQ.
• Slot Revenues: US$45.0 million, down 5.5% QoQ.

Table 5: Changes in Estimates

• Price Objective: Increased from HK$32.10 to HK$33.50.
• 2016E Revenue: US$6,463 million, down 1% YoY.
• 2017E Revenue: US$7,395 million, down 5.2% YoY.
• 2016E EBITDA: US$1,170 million, down 19.9% YoY.
• 2017E EBITDA: US$1,431 million, up 22.2% YoY.

Conclusion

Sands China's 2Q16 results indicate a mixed performance with strong EBITDA and margin improvements, but challenges in VIP and hotel segments. The company's strategic initiatives, including the Parisian project and cost control measures, are expected to drive future growth. The investment rationale highlights its defensiveness and competitive position in the mass market, supporting a "Buy" recommendation with a revised price objective.