Sands China [1928.HK]

Transcription

1 January 30, 2014 Sands China [1928.HK] Q Robust Quarter Again Q4 adjusted property EBITDA up 34.3% YoY, 6.6% QoQ to US$836.0m. Mass market growth was key. 1) Sands Cotai Central (SCC) was the outperformer on continuous ramp-up with US$237.8m adjusted EBITDA. 2) Venetian Macao surprised us on 86.7% YoY increase in non-rolling chip drop. Sands China s net revenue was up 28.8% YoY to US$2,504.6m and net income was up 40.4% YoY to US$655.6m, on a US GAAP basis. Adjusted EBITDA margin was at 33.4%. In line with our and street estimates. Q3 adjusted EBITDA was slightly better than our estimates of US$807.4m, and in line street estimates of US$836m. Gaming volume was ahead of our estimates, in both VIP and mass gaming, which were off-set by relatively low win rate in Four Seasons and Sands Macao. Overall, net revenue was in line with our estimates. Table optimization is on-going, from small to big. With the ramp-up of SCC, we see tables in Sands Macao (down 5.3%) and Four Seasons (down 4.5%) were relocated to Venetian Macao (up 4.4% QoQ) and SCC (up 1.6% QoQ). Average number of mass market gaming was up 3.7% QoQ to 1,091, the of VIP gaming was down 6% QoQ to 439. We see further room to improve table yield in Sands China properties especially in SCC, where hotel occupancy rate can be further enhanced. Maintain BUY with TP unchanged to HK$ We fine-tune our numbers on updated Q4 results, and we refine our earnings projection by 4.2%/0.5% for 2013E/14E. Sands China is trading at 20.3x PER with 3.9% yield on our revised 2014E forecast, lower than the sector s valuation of 22.0x 2014E PER. From the current valuation, we expect Sands China to outperform the sector in next quarter, when the company reports another strong growth on the ramp-up of SCC, after expanding hotel room base in Q Our TP implies 0.6x 2014E PEG for E EPS CAGR, which we believe undemanding. US$m E 2014E 2015E Total net revenue 4, , , , ,264.0 Net profit 1, , , , ,269.1 Net margin 23.2% 19.0% 25.7% 26.0% 26.7% Basic EPS (US$) Basic EPS (HK$) PER 53.4x 49.1x 26.7x 20.3x 18.5x BUY Close: HK$58.40 (Jan 29, 2014) Target Price: HK$71.60 (+23%) Price Performance Market Cap US$60,681.8m Shares Outstanding 8,063m Auditor Macau Gaming Sector PWC Free Float 30% 52W range 3M average daily T/O Major Shareholding Source: Company, Bloomberg Angela Han Lee (852) angelahanlee@chinastock.com.hk John Mulcahy (852) johnmul@chinastock.com.hk HK$ US$84m Las Vegas Sands (70%) Yield 2.0% 2.3% 4.2% 3.9% 4.3% PBR 11.x 10.8x 9.4x 10.5x 9.3x 1

2 Quarterly Results US$m 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 YoY QoQ Net Revenues 1, , , , , , , , % 8.6% Venetian Macao , % 22.9% Four seasons and Plaza % -27.8% Sands Cotai Central % 7.3% Sands Macao % 7.0% Adjusted Property EBITDA % 6.6% Venetian Macao % 21.3% Four seasons and Plaza % -32.0% Sands Cotai Central % 6.0% Sands Macao % -2.1% EBITDA Margin (as of net revenues) 32.1% 29.5% 30.3% 32.0% 31.6% 32.1% 34.0% 33.4% Venetian Macao 36.5% 35.3% 38.7% 39.5% 40.0% 40.3% 38.2% 37.7% Four seasons and Plaza 22.5% 28.8% 24.2% 30.3% 24.0% 22.5% 34.2% 32.3% Sands Cotai Central n.a. 19.5% 18.1% 22.0% 22.4% 25.0% 30.5% 30.1% Sands Macao 30.6% 26.3% 25.6% 29.1% 31.1% 30.0% 29.4% 26.9% Net income (GAAP) % 6.1% Net margin (as of net revenues) 19.5% 11.0% 20.3% 24.0% 22.7% 23.8% 26.8% 26.2% Net margin (as of total revenues) 18.8% 10.6% 19.5% 23.1% 21.9% 22.9% 25.7% 25.0% Rolling Chip Volume 32, , , , , , , , % 9.2% Venetian Macao 13, , , , , , , , % 18.4% Four seasons and Plaza 12, , , , , , , , % -10.0% Sands Cotai Central - 6, , , , , , , % 13.0% Sands Macao 6, , , , , , , , % 11.1% Non-Rolling Chip Drop 1, , , , , , , , % 15.7% Venetian Macao 1, , , , , , , , % 13.1% Four seasons and Plaza % 21.5% Sands Cotai Central , , , , % 17.6% Sands Macao , % 16.9% Slot Handle 2, , , , , , , , % 13.7% Venetian Macao 1, , , , , , , , % 13.3% Four seasons and Plaza % 2.9% Sands Cotai Central , , , , , , % 19.8% Sands Macao % 5.3% Hotel Occupancy Rate Venetian Macao 93.4% 86.7% 93.9% 93.4% 91.6% 87.4% 91.8% 94.4% Four seasons and Plaza 82.3% 73.3% 83.1% 81.8% 81.2% 80.7% 88.2% 90.8% Sands Cotai Central n.a. 75.1% 88.9% 84.0% 70.8% 67.5% 84.8% 89.1% Sands Macao 93.8% 93.2% 97.3% 96.9% 94.9% 95.0% 96.9% 97.4% 2

3 By properties Venetian Macao surprises. Its rolling chip volume was up by 26% YoY, in line with the YoY growth in Q3. We were even more surprised to see 77.9% YoY growth in non-rolling chip drops, even after the 4.7ppts YoY decline in win rate. The property s profitability continues to improve through table optimization, leaving us with more room to project SCC s growth in the future. The average number of gaming tables was up from 457 in Q to 639, reflecting the addition of 200 tables at the start of the year. Sands Cotai Central (SCC) is growing as expected. Net revenue was up 61.1% YoY to US$790.7m, on 72.7% and 80.2% YoY increase in VIP gaming and mass market gaming volume. Rolling chip volume kept surpassing the Venetian Macao during the past four consecutive quarters. Given hotel occupancy rate of 89.1% still has room to improve, we expect another strong Q1 2014E on the continuous ramp-up. Four Seasons and Sands Macao underperforms. The underperformance was mainly due to 1) relocation of gaming tables from smaller to bigger casinos, and 2) the properties were relatively unlucky. Expansion in Cotai continues. 1) The Parisian construction is progressing. The plan to complete by late 2015 is unchanged. The new property in Cotai is expected to have a 50% replica of the Eiffel Tower and 3,000 hotel rooms. The capex guidance was maintained at US$2.7bn, with a gaming capacity of 450 tables and 2,500 slot machines. 2) SCC Phase 3, St. Regis Tower construction was reaffirmed. Figure 1: Plan of the Parisian Figure 2: The Parisian construction progress on Jan 27,

4 Key Financials Profit & loss (US$m) E 2014E 2015E Cash flow (US$m) E 2014E 2015E Total net revenue 4, , , , ,264.0 Net income 1, , , , ,269.1 Gaming tax and levy (2,070.5) (2,859.3) (3,153.2) (4,227.0) (4,529.1) Depreciation and amortization Inventories consumed (48.6) (69.1) (170.7) (170.1) (181.0) Change in w orking capital (173.8) Employee benefit expenses (523.3) (761.5) (1,150.8) (1,718.1) (1,717.0) Other operating cashflow Depreciation and amortisation (272.8) (354.0) (565.0) (572.6) (593.4) Operating cashflow 1, , , , ,904.1 Gaming promoter commissions (259.3) (330.0) (455.6) (612.2) (656.2) CAPEX (1,009.6) (1,015.0) (613.7) (1,720.1) (1,884.1) Other operating expenses (504.1) (856.2) (1,027.5) (1,130.2) (1,243.3) Proceeds from disposals (183.0) (230.3) (283.2) Adjusted EBITDA 1, , , , ,028.8 Other investing cashflow 1,006.6 (74.9) Operating profit 1, , , , ,344.2 Investing cashflow 3.1 (986.3) (796.7) (1,950.4) (2,167.3) Interest expense (52.9) (57.4) (65.2) (46.3) (76.9) Net proceeds from borrow ings (186.3) (943.6) 1, Interest income Share issue Other non-operating items (22.1) (1.8) Dividend paid - (1,201.5) (1,382.0) (3,713.9) (2,500.5) Pre-tax profit 1, , , , ,275.6 Other financing cashflow (247.4) (90.4) Income tax expense (2.3) (1.8) (4.6) (6.0) (6.6) Financing cashflow 67.4 (1,466.6) (2,325.5) (2,185.8) (1,501.5) Non-conrolling interests Foreign exchange rate adj Net profit 1, , , , ,269.1 Net change in cash 1,450.5 (542.8) (206.1) (346.7) Basic EPS (US$) Basic EPS (HK$) DPS (US$) DPS (HK$) Key ratios E 2014E 2015E Total net revenue grow th 17.8% 33.4% 35.9% 29.4% 7.1% Balance sheet (US$m) E 2014E 2015E Adjusted EBITDA grow th 29.6% 25.5% 51.3% 23.3% 9.2% Cash and cash equivalents 2, , , , ,631.0 Operating profit grow th 53.0% 6.6% 81.8% 29.8% 10.6% Inventories Net profit grow th 70.0% 9.1% 83.8% 31.3% 9.6% Account receivables , , ,478.1 EBITDA margin 32.3% 30.4% 33.8% 32.2% 32.9% Other current assets Operating margin 24.6% 19.7% 26.3% 26.4% 27.3% Total current assets 3, , , , ,135.0 Net margin 23.2% 19.0% 25.7% 26.0% 26.7% Property, equipment, construction 6, , , , ,093.8 Return on asset 11.2% 11.9% 21.2% 24.8% 23.4% Investment properties , , ,661.9 Return on equity 20.5% 22.1% 35.1% 51.9% 50.2% Intangible assets Net debt to equity 16.6% 23.5% 8.9% 42.6% 49.3% Other non-current assets Quick ratio 2.4x 1.8x 1.5x 1.1x 1.2x Total assets 10, , , , ,953.0 Current ratio 2.4x 1.8x 1.5x 1.1x 1.2x ST borrow ings Interest coverage ratio 22.7x 22.3x 35.7x 65.3x 43.5x Account payables 1, , , , ,563.8 Other current liabilities Total current liabilities 1, , , , ,612.7 LT borrow ings 3, , , , ,795.2 Other non-current liabilities Revenue Breakdown (US$m) E 2014E 2015E Total liabilities 4, , , , ,440.8 Gaming - Sands Macao 1, , , , ,445.7 Common stock - par value Gaming - Venetian Macao 2, , , , ,148.9 Reserves 5, , , , ,431.7 Gaming - Plaza Macao , ,560.6 Shareholders equity 5, , , , ,512.2 Gaming - Sands Cotai Central , , ,781.2 Minority interest Gaming - Parisian Total equity and liabilities 10, , , , ,953.0 Non-gaming , , ,327.6 Total net revenue 4, , , , ,264.0 Basic BPS (US$) Basic BPS (HK$)

5 Comparable Valuation Table Company Ticker Price 52-Wk Price Range Mkt Cap 3m Avg Turnover E 2014E E 2014E (HK$) (HK$) (US$m) (US$m) (x) (x) (x) (x) (x) (x) SJM HOLDINGS LTD 880 HK / 28 16, SANDS CHINA LTD 1928 HK / , GALAXY ENTERTAIN 27 HK / , WYNN MACAU LTD 1128 HK / , MELCO CROWN ENTE 6883 HK / , MGM CHINA HOLDIN 2282 HK / , Simple Avg Mkt Cap Avg PER EV/EBITDA Company Dividend Yield PBR ROE Net Debt/Equity E 2014E E 2014E E 2014E E 2014E (x) (x) (x) (x) (x) (x) (%) (%) (%) (%) (%) (%) SJM HOLDINGS LTD Net Cash Net Cash Net Cash SANDS CHINA LTD GALAXY ENTERTAIN WYNN MACAU LTD Net Cash Net Cash 39.3 MELCO CROWN ENTE Net Cash Net Cash MGM CHINA HOLDIN Net Cash Net Cash 0.2 Simple Avg Mkt Cap Avg Source: Bloomberg, CGIHK Research January 29, 2014 Figure 3: PER band Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Share price 12.0x 17.0x 22.0x 27.0x Source: Company, Bloomberg, CGIHK Research Figure 4: PBR band Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Share price 2.0x 4.0x 6.0x 8.0x Source: Company, Bloomberg, CGIHK Research 5

6 Analyst Certification The research analyst who is primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the securities or issuer covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject, securities or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by the analyst in this report. Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) will deal in or trade in the stock(s) covered in this research report three business days after the date of issue of this report; (3) serve as an officer of any of the Hong Kong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies covered in this report. Explanation on Equity Ratings BUY share price will increase by >20% within 12 months in absolute terms SELL share price will decrease by >20% within 12 months in absolute terms HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL DISCLAIMER For private perusal only. This report (including any information attached) is issued by China Galaxy International Securities (Hong Kong) Co., Limited, one of the subsidiaries of the China Galaxy International Financial Holdings Limited, to individual addressee whether they are professional, institutional client or otherwise, in good faith from sources believed to be reliable but no representation or warranty (expressly or implied) is made as to their accuracy, correctness and/or completeness. Where any part of the information, opinions or estimates contained herein reflects the personal views and opinions of the analyst who prepared this report, such views and opinions may not correspond to the published view of China Galaxy International Financial Holdings Limited and any of its subsidiaries. This report shall not be construed as an offer, invitation or solicitation to buy or sell any securities of the company or companies referred to herein. All opinions and estimates reflect the judgment of the analyst on the date of this report and are subject to change without notice. Please take note that member companies of China Galaxy International Financial Holdings Limited (including but not limited to China Galaxy International Securities (Hong Kong) Co., Ltd) and/or their directors, officers, agents and employees ( the Relevant Parties ) may have an interest in securities of the company or companies referred to in this report. The Relevant Parties hereby disclaim any of their liabilities arising from the inaccuracy, incorrectness and incompleteness of this report and its attachment/s and/or any action or omission made in reliance thereof. Accordingly, this report must be read in conjunction with this disclaimer. COPYRIGHT RESERVED China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459, Room , 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen s Road Central, Sheung Wan, Hong Kong. General line: