Sands China Ltd. Global Gaming Operators 1928-HKG HKSE HK$36.85 Company Update

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1 27 April 2017 Asia Research Rating: Buy Price Target: HK$41.00 Price 52wk Range HK$36.85 HK$ HK $39.30 Shares Outstanding (MM) 8,072.6 Market Capitalization (MM) Enterprise Value (MM) HK$297,475.3 HK$321, D Avg Volume (000s) 13,948.5 Short Interest/Float 0.0% Dividend Yield 5.4% YTD % Chg 9.3% YTD % Chg Relative to Index 2.7% Total Implied Return to PT 16.7% Pricing Date April 27, HKG Sands China Ltd /16 07/16 10/16 01/17 04/17 Sands China Ltd. Global Gaming Operators 1928-HKG HKSE HK$36.85 Company Update Mass is where it's at for SCL; maintain Buy on stable growth story 1Q17 recap. SCL reported net revenue of US$1.88bn (+15% y/y), which was inline with consensus. Property-level EBITDA was $624mm (+20.5% y/y) and slightly above our estimate of $620mm, and above consensus of $602mm. The portfolio held lucky on VIP and luck-adjusted EBITDA was closer to $592mm (+14.3% y/y). Importantly, and on a luckadjusted basis, EBITDA grew 5% sequentially from $566mm in 4Q16. Mass story continues unabated. We like SCL as the most stable and defensive way to play Macau given the higher visibility / lower risk profile of its mass-centric business model, anchored by our view that mass growth should continue in the low double digits for the balance of the year. During 1Q17, SCL grew portfolio-wide mass table GGR +18% y/y (vs. our estimate of +17%), which was likely ~600bps better than market-wide mass growth. VIP volume across the portfolio was down 1% y/y, well below the market at ~+14% although not surprising given SCL's mass focus. Within mass, SCL's premium mass GGR was +30% y/y while base mass was +9% y/y. This makes sense in the context of the entire market experiencing a high-end revival and we expect this dynamic to continue (note that this was the 3rd consecutive quarter where SCL's premium mass outgrew base mass). Parisian ramp. Although EBITDA declined sequentially at Parisian, this was entirely a function of VIP playing very lucky in the prior quarter. Importantly, mass table GGR at Parisian was +9% sequentially, outpacing market-wide sequential mass table growth of 3%. We expect continued steady improvement throughout 2017, although the true potential will not be seen until the room reconfiguration is complete. We are now forecasting $364mm in EBITDA at Parisian in 2017, or an implied 14% return on the $2.6bn investment. Maintaining Buy rating. While we do expect SCL to gain some VIP traction going forward we are still modeling the bulk of EBITDA growth coming from mass and slots in the quarters ahead. Our 2017 and 2018 corporate EBITDA estimates are HK$19.2 (from $19.8bn) and $21.3bn (unchanged), respectively. These are 2% and 5% higher than pre-results consensus for 2017 and We continue to believe that the market-wide mass GGR growth rate should be maintained in the low double digits and expect SCL to capture above-market growth. We are maintaining our Buy rating on shares of SCL and are raising our PT to $41 (+2). Analysts Grant Govertsen Tel: grant.govertsen@uniongaming.com Year to Dec Net Revenue Adjusted EBITDA EPS 2017E 60,007 19, Prior 62,089 19, E 64,468 21, Prior 65,510 21, *Please see analyst certification and required disclosures starting on page 5 of this report Union Gaming. All rights reserved. No part of this report may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying or by any information storage and retrieval system, without permission in writing from Union Gaming.

2 Segment trends Given that property-level results can fluctuate quarter-to-quarter due to the luck factor or player migration, we think it is important to look at the entire enterprise. With that in mind, we highlight the following metrics that SCL reported: VIP GGR +1% y/y (-2% sequentially), which enjoyed a benefit from good luck in the both the current and prior year quarter. When looking solely at VIP volume, SCL decline 1% y/y. We estimate the market as a whole saw VIP volume grow around 14% y/y, suggesting SCL underperformed in this segment. This is inline with recent history and we're comfortable with sub market performance in VIP and have been modeling accordingly. Mass table GGR +18% y/y (+5% sequentially) performed well above the market, which we estimate grew by around 11% or 12% y/y. Importantly, on a same-store basis, mass table GGR was only down 1%, suggesting that the balance of the portfolio is holding its own for this key segment. Slots / ETGs GGR +10% y/y (+1% sequentially) was slightly below the market at +13% (+6% sequentially), which we would attribute to the VIP resurgence in the market with some number of VIP dollars allocated to VIP slots. Valuation We are raising our price target to HK$41 (+2). Our price target is based on blended 14x multiple of our forward (2018) estimates for Sands China (ex-retail contribution). In addition, we assign a 33x multiple (or an implied 3% cap rate) to SCL s retail-related EBITDA, which, in effect, values this portion of the business as if in a sale scenario. The 14x multiple on non-retail operations represents a premium to the market, but we believe this is justified given the company's dominant position in the high-margin, high-visibility mass market segment. New estimates For the full years 2017 and 2018, we are modeling HKD19,239mm (+11% y/y) and HKD21,307mm (+11% y/y) in EBTIDA, respectively. In the out years, we expect SCL to generally grow inline to slightly above the market, driven primarily by mass market. Please see the below figure for detailed financial estimates. Risks Risks to shares of Sands China include: a slowdown in Chinese customer demand, both VIP and mass, driven by a macro-economic slowdown out of China, the potential for further currency devaluations against the HKD, the influence from Beijing which could have a material impact on visitation to Macau (e.g. visa restrictions), the impact of the mass market smoking ban and the potential for a VIP and total smoking ban, any UnionPay related restrictions, incremental regional competition (e.g. Philippines, Taiwan, Vietnam, etc.) vying for Macau s VIP customers, incremental competition opening on Cotai over the coming months and years, and opaqueness surrounding the renewal of the company s license expiration in

3 Figure 1: Sands China SOTP valuation Casino/Hotel Operations Venetian Macau (ex. Retail) $7, x $109,068 Four Seasons Macau (ex. Retail) x 12,586 Sands Cotai Central (ex. Retail) 4, x 66,009 The Parisian (ex. Retail) 2, x 36,875 Sands Macau 1, x 23,012 Cotai Jet x 2,781 Corporate (1,174) 8.0x (9,394) Subtotal TEV $16, x $240,938 Retail Mall Operations Shoppes at Venetian 1, x $51,436 Shoppes at Parisian x 23,244 Shoppes at Four Seasons x 31,593 Shoppes at Cotai Central x 17,331 Subtotal TEV $3, x $123,603 Total Enterprise Total Enterprise Value $364,541 (-) Sands China debt (35,775) (+) Sands China cash 5,331 Implied equity value $334,097 Shares outstanding 8, HK PRICE TARGET $41.40 Source: Union Gaming 3

4 Figure 2: Sands China financial model HK $ in millions. FYE December 2014A 2015A 2016A 1Q17A 2Q17E 3Q17E 4Q17E 2017E 2018E Revenue Sands Macao $9,121 $6,830 $5,346 $1,413 $1,354 $1,372 $1,400 $5,539 $5,656 Venetian Macao 31,371 23,191 22,474 5,753 5,440 5,588 5,656 22,438 23,620 The Plaza (Four Seasons) 8,600 5,365 4,639 1,110 1,188 1,239 1,304 4,841 5,293 Cotai Central 24,332 16,940 15,252 3,626 3,836 3,940 3,964 15,366 16,869 Cotai Jet 1,178 1,241 1, ,402 1,542 The Parisian 3,203 2,469 2,552 2,675 2,725 10,421 11,488 Total Revenue $74,603 $53,567 $52,266 $14,689 $14,700 $15,185 $15,432 $60,007 $64,468 Revenue Growth % year-over-year Sands Macao (5.0%) (25.1%) (21.7%) 3.9% (5.7%) 5.6% 12.0% 3.6% 2.1% Venetian Macao 4.9% (26.1%) (3.1%) (1.1%) 5.2% (6.8%) 3.0% (0.2%) 5.3% The Plaza (Four Seasons) 4.0% (37.6%) (13.5%) (3.6%) 22.4% (1.0%) 3.0% 4.3% 9.3% Cotai Central 16.1% (30.4%) (10.0%) (11.9%) 4.5% (1.9%) 15.0% 0.7% 9.8% Cotai Jet 8.7% 5.3% 8.9% 6.2% 3.0% 3.0% 3.0% 3.7% 10.0% The Parisian NA NA NA NA NA NA NA Total Revenue 6.9% (28.2%) (2.4%) 15.3% 27.1% 12.8% 6.5% 14.8% 7.4% EBITDA Sands Macao $2,628 $1,755 $1,494 $419 $393 $398 $406 $1,616 $1,640 Venetian Macao 12,005 8,374 8,455 2,244 2,067 2,123 2,149 8,584 9,330 The Plaza (Four Seasons) 2,911 1,890 1, ,680 1,853 Cotai Central 7,776 5,058 4,784 1,110 1,151 1,182 1,189 4,632 5,229 Cotai Jet The Parisian ,824 3,331 Total Property EBITDA $25,347 $17,255 $17,583 $4,823 $4,788 $4,939 $5,019 $19,569 $21,661 Corporate Expenses (410) (295) (287) (81) (81) (84) (85) (330) (355) Total Adjusted EBITDA $24,937 $16,960 $17,295 $4,742 $4,707 $4,856 $4,934 $19,239 $21,307 % growth year-over-year 12.5% (32.0%) 2.0% 15.4% 26.4% 1.0% 6.0% 11.2% 10.7% LTM Adjusted EBITDA $24,937 $16,960 $17,295 $17,929 $18,911 $18,961 $19,239 $19,239 $21,307 % growth year-over-year 12.5% (32.0%) 2.0% 5.3% 15.0% 11.0% 11.2% 11.2% 10.7% EBITDA Margins Sands Macao 28.8% 25.7% 27.9% 29.7% 29.0% 29.0% 29.0% 29.2% 29.0% Venetian Macao 38.3% 36.1% 37.6% 39.0% 38.0% 38.0% 38.0% 38.3% 39.5% The Plaza (Four Seasons) 33.8% 35.2% 37.1% 33.7% 35.0% 35.0% 35.0% 34.7% 35.0% Cotai Central 32.0% 29.9% 31.4% 30.6% 30.0% 30.0% 30.0% 30.1% 31.0% Cotai Jet 2.3% 14.3% 18.1% 12.2% 18.0% 18.0% 18.0% 16.7% 18.0% The Parisian Total Adjusted EBITDA 33.4% 31.7% 33.1% 32.3% 32.0% 32.0% 32.0% 32.1% 33.0% Source: Union Gaming 4

5 Important Disclosure Analyst Certification The analyst, Grant Govertsen, primarily responsible for the preparation of this research report attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers; and (2) that no part of the research analyst s compensation was, is, or will be directly related to the specific recommendations or views in this research report. Ratings Definitions Current Ratings Definition Union Gaming Securities LLC and Union Gaming Securities Asia Limited use a traditional ratings construct (Buy, Hold, and Sell) that is underscored by percentage upside/downside from current trading levels along with dividend yields for total return. We exclude special dividends and contemplate regular dividends only in our total return forecasts. These are absolute ratings, not relative or forced ratings. We define a Buy rating as a company whose shares exhibit total return (appreciation and dividends) potential of at least 15% within the next 12 months, and conversely a Sell rating as a company whose shares exhibit downside potential of at least 15% within the next 12 months. A Hold rating is reserved for companies whose shares exhibit total return potential between those parameters. Buy the total forecasted return is expected to be greater than 15% within the next 12 months Hold the total forecasted return is expected to be greater than or equal to 0% and less than or equal to 15% Sell whose shares exhibit downside potential of at least 15% within the next 12 months Suspended the company rating, target price and earnings estimates have been temporarily suspended. Valuation and Risks Valuation Valuation Methodology for Price Target: Enterprise Value-to-EBITDA, Sum-of-the-Parts Analysis, Price-to-Earnings Ratio, Discounted Cash Flow Analysis, Price-to-AFFO, Net Asset Value. Risks Investment Risks: Union Gaming Securities equity research team covers the casino, gambling, gaming, lottery and related sectors. The companies operating within these sectors generally have a global presence or significant exposure to China and Las Vegas, among other markets. In addition, the markets that companies in these sectors operate are highly regulated by local and federal governments. Risks across or specific to one or more of these sectors include regulatory or legislative impacts related to licensing, tourism or the competitive landscape. Licenses to operate gaming facilities or supply gaming equipment or lottery services are often governed by regulatory authorities. Additional Risks for investing in these sectors include volatility in consumer discretionary spending and consumer confidence, currency, interest rates, unemployment rates, access to capital, the cost of capital, commodity costs, geopolitical uncertainty, and unfavorable government regulations. Companies operating within our covered sectors rely in part on tourism, and business trends could be impacted by changes or influences to tourism in a given market or markets, including visa policy, transit policies and security, transportation infrastructure, weather and natural disasters. Ratings Distribution (as of 04/27/2017) Coverage Universe Investment Banking Services / Past 12 Months Ratings Count Pct. Rating Count Pct. BUY 17 74% BUY 3 18% HOLD 6 26% HOLD 0 0% SELL 0 0% SELL 0 0% Sands China Ltd. Rating History as of 04/25/2017 powered by: BlueMatrix H:$ /09/14 H:$ /12/14 H:$ /15/14 B:$ /26/15 B:$ /29/15 B:$ /23/15 B:$ /24/15 B:$ /12/15 B:$ /22/15 B:$ /12/15 B:$ /22/15 B:$ /27/16 B:$ /21/16 B:$ /19/ Jul 2014 Oct 2014 Jan 2015 Apr 2015 Jul 2015 Oct 2015 Jan 2016 Apr 2016 Jul 2016 Oct 2016 Jan 2017 Apr 2017 Closing Price Target Price 5

6 General Disclosures Additional information is available upon request. This report was prepared by Union Gaming Securities Asia Limited. Union Gaming Securities Asia Limited is a licensed corporation with the Securities and Futures Commission (SFC) in Hong Kong and wholly owned subsidiary of Union Gaming Group LLC. Union Gaming Group LLC also owns Union Gaming Securities LLC, a FINRA member firm and Union Gaming Analytics LLC. All questions or comments concerning this research report should be addressed to Union Gaming Securities Asia Limited at Union Gaming Securities, LLC ("UGS"), an affiliate of Union Gaming Securities Asia Limited, does not own any securities of any company analyzed in the research reports it distributes. Neither Union Gaming Securities LLC nor its affiliates or analysts serve as an officer, director or advisory board member of any Subject Company. UGS, its affiliates, analysts and employees may have received investment banking, non-investment banking securities and non-securities service, related compensation from the subject company in the past 12 months. It further intends to seek compensation for investment banking, non-investment banking securities and non-securities service, related activities in the next three months. Accordingly, investors should be aware that the firm and its affiliates may have a conflict of interest that could affect the objectivity of the reports it distributes. UGS is not now nor has ever been a market maker. All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Bloomberg and Factset. Data is sourced from Union Gaming Securities LLC, Union Gaming Securities Asia Limited, and subject companies. Union Gaming Securities LLC and Union Gaming Securities Asia Limited are not responsible for errors in prices provided by independent sources. Data, analyses, and reports necessarily contain time-sensitive information, and no subscriber or client should rely on dated reports or conclusions. Investor clients and financial advisers should consider any report from Union Gaming as only a single factor in making any investment decision. 6