20171026-招商证券_香港_-金沙中国有限公司-01928.HK-3Q17_marginally_beat__Parisian_jumped_7页_598kb

Sands China (1928 HK) Summary

Core Content Overview

This report provides an analysis of Sands China's third-quarter performance in 2017, including financial results, earnings revisions, valuation, and key business insights. It highlights the company's performance in different properties and outlines its future growth plans and market position relative to peers.

Main Financial Performance

• 3Q17 Property EBITDA: US$652 million (+4% YoY, +9% QoQ), slightly exceeding estimates.
• 3Q17 Net Revenue: US$1,944 million (+12% YoY, +6% QoQ), underperforming the overall Macau growth due to lower VIP and mass market performance at Sands Macao and Venetian Macao.
• Parisian's Performance:
  • Net revenue increased by 16% QoQ.
  • VIP GGR rose by 48% QoQ.
• Sands Cotai Central (SCC):
  • Net revenue increased by 7% QoQ.
  • Non-gaming revenue exceeded expectations with a 93% hotel occupancy rate.
• Overall EBITDA: Reached the highest level since 4Q14 at US$711 million, with a QoQ margin increase of 0.9ppt to 33.5%.

Key Business Highlights

• Parisian and SCC Outperformed: These properties showed strong growth, indicating effective strategies in capturing high-end demand and improving non-gaming segments.
• Facility Upgrades:
  • SCC rebranded to The Londoner with a $700 million capex.
  • VIP gaming areas at Venetian and Four Seasons to be improved by early FY18E/FY19E.
  • Additional luxurious suites at Parisian and St Regis/Four Seasons to be completed by FY18E and FY19E.
• Competitive Edge: Upgrades are expected to enhance competitiveness and align with the continuously upgrading consumption behavior of Chinese tourists.

Valuation and Investment Outlook

• Target Price (TP): HK$42.70, a 13% increase from the previous TP of HK$41.70.
• Valuation Metrics:
  • FY18E P/E: 22.8x, below 5-year average.
  • FY18E EV/EBITDA: 16.0x, below 5-year average.
• Current Valuation:
  • The stock trades at FY18E 23x P/E and 16x EV/EBITDA.
  • Dividend yield is at 5.3%, showing strong yield commitment.
• Investment Rating: Maintain BUY, as the stock is undervalued and the business model remains robust.

Earnings Revisions

• FY17E and FY18E Adjustments:
  • Total net revenue: Revised slightly downward by 1% for FY17E and 0% for FY18E.
  • EBITDA: Slightly increased by 0% for FY17E and 2% for FY18E.
  • Net profit: Increased by 1% for FY17E and 3% for FY18E.
• Specific Property Adjustments:
  • Sands Macao: Net revenue and EBITDA both showed negative growth.
  • Venetian Macao: Net revenue and EBITDA slightly decreased.
  • Four Seasons and Plaza: Net revenue and EBITDA slightly increased.
  • SCC: Net revenue increased by 4% and EBITDA improved.
  • Parisian: Strong net revenue growth and improved EBITDA margin.

Key Risks

• Mass Market Performance: Parisian's mass market performance was weaker than expected.
• Cannibalization: There is a risk of increased competition and cannibalization from Venetian Macao and Cotai Central.

Peer Comparison

• Galaxy (27 HK): P/E 25.1x, EV/EBITDA 19.6x.
• SJM (880 HK): P/E 23.5x, EV/EBITDA 18.9x.
• Wynn Macau (1128 HK): P/E 28.7x, EV/EBITDA 20.3x.
• Sands China (1928 HK): P/E 26.0x, EV/EBITDA 19.6x.
• MGM China (2282 HK): P/E 24.4x, EV/EBITDA 16.5x.
• Melco Resorts (MLCO US): P/E 30.9x, EV/EBITDA 17.9x.
• Melco Group (200 HK): P/E 18.1x, EV/EBITDA 12.9x.

Financial Summary

Balance Sheet Highlights

• Total Assets: US$11,789 million (2019E).
• Total Liabilities: US$7,949 million (2019E).
• Shareholders' Equity: US$3,840 million (2019E).
• Current Assets: US$1,865 million (2019E).
• Non-current Assets: US$9,924 million (2019E).
• Current Liabilities: US$1,927 million (2019E).
• Non-current Liabilities: US$6,022 million (2019E).

Cash Flow Highlights

• Net Cash Flow (2019E): US$41 million.
• Capital Expenditure (2019E): US$1,037 million.
• CF from Operating Activities (2019E): US$2,640 million.
• CF from Investing Activities (2019E): US$-992 million.
• CF from Financing Activities (2019E): US$-1,607 million.

Income Statement Highlights

• Total Net Revenue (2019E): US$8,154 million.
• Gaming Tax (2019E): US$-3,003 million.
• Labor Expenses (2019E): US$-1,370 million.
• D&A (2019E): US$-679 million.
• Promoter Commission (2019E): US$-164 million.
• Other OP Expenses (2019E): US$-977 million.
• Adj. EBITDA (2019E): US$2,794 million.
• Op Profit (2019E): US$1,961 million.
• Fin. Costs (2019E): US$-133 million.
• Inv Income (2019E): US$4 million.
• After-tax Profit (2019E): US$1,814 million.
• EPS (2019E): US$0.22.
• DPS (2019E): US$0.26.

Financial Ratios

• Debt/Equity: Increased to 152.4% in FY19E.
• Net Debt/Equity: 79.3% in FY17E.
• EBITDA Margin: 34.3% in FY19E.
• Op Profit Margin: 24.1% in FY19E.
• Net Profit Margin: 22.2% in FY19E.
• ROE: Increased to 47.2% in FY19E.
• ROIC: Increased to 18.8% in FY19E.

Conclusion

Sands China delivered a strong 3Q17 EBITDA, with Parisian and SCC showing significant improvement. The company is maintaining a BUY rating, supported by its robust business model and strong dividend yield. Despite some risks, the current valuation suggests a potential upside. The company's strategic facility upgrades and market position are key factors in its future growth.