Sands China [1928.HK] Q Market Share Gainer our TP raised by 59%

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1 Sands China [1928.HK] Q Market Share Gainer our TP raised by 59% Q3 adjusted property EBITDA up 6.7% YoY, 19.4% QoQ to US$784.3m, on: 1) continued ramp-up of Sands Cotai Central (SCC) with US$224.3m adjusted EBITDA; and 2) strong operating result from the Four Seasons and Plaza with US$112.9m adjusted EBITDA. Sands China s net revenue was up 43.4% YoY to US$2,7.1m and net income was up 89.1% YoY to US$617.9m, on a US GAAP basis. Adjusted EBITDA margin reached a historic high at 34%. Well ahead of our and street estimates. Q3 adjusted EBITDA was much stronger than our estimates of US$743.8m, and street estimates of US$732m. While the top line was in line with our estimates, the improvement in operating efficiency was the main surprise. Relatively big properties than its peers is demonstrating its scale effect, adding market share during the summer peak season. By properties, SCC s profitability was 21.5% better than our forecast, due to larger traffic flow than expected. By segment, VIP gaming advanced faster than our expectation, with rolling chip volume increasing 26% YoY junkets at Four Seasons and Plaza are delivering strong figures, with 26.4% YoY growth in rolling chip volume. Backed by a pick-up of the sector s growth, table yield continues to improve in Sands China despite the room to improve through the ramp-up in SCC - daily rolling chip volume and mass table games win per table reached record highs of US$1.6m and US$,961. Maintain BUY with TP raised to HK$71.6 from HK$45.. On better than expected margin, we revise up our earnings forecast by 6.1%/17.2%/.2% for 13E/14E/15E. Sands China is trading at 18.6x PER with 4% yield on our revised 14E forecast, lower than the sector s valuation of 21.x 14E PER. The outperforming 39.8% earnings CAGR during 12-15E and the Parisian s opening in late 15 imply further upside from current valuation, on the back of 1) continued market share expansion on the ramp-up of SCC, and 2) industry s best EBITDA margin continues improving. We revise up our target price to roll over to 14E with same target PER of 25x, implying.6x 14E PEG for 12-15E EPS CAGR, and recommend investors BUY as a proxy for the mass-market Cotai play E 13E 14E 15E Turnover (US$m) 4,881 6,511 8,947,693 11,872 Net profit (US$m) 1,133 1,236 2,18 2,966 3,376 Net margin (%) Basic EPS (HK$) Change (%) Oct 18, 13 BUY Close: HK$53. (Oct 17, 13) Target Price: HK$71.6 (+35%) Price Performance Market Cap US$55,17m Shares Outstanding 8,63m Auditor Macau Gaming Sector PWC Free Float % 52W range 3M average daily T/O Major Shareholding Source: Company, Bloomberg Angela Han Lee (852) angelahanlee@chinastock.com.hk John Mulcahy (852) johnmul@chinastock.com.hk HK$ US$64m Las Vegas Sands (7%) PER (x) Yield (%)

2 Quarterly Results US$m 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 3Q13 QoQ 3Q13 YoY Total Revenues 1,35.2 1, , , ,24.4 2,72.7 2,132. 2, % 43.6% Venetian Macao % 21.3% Four seasons and Plaza % 46.2% Sands Cotai Central % 146.7% Sands Macao % -2.6% Net Revenues 1,1.7 1, , ,68.5 1, , ,47.5 2, % 43.4% Venetian Macao % 21.% Four seasons and Plaza % 47.% Sands Cotai Central % 148.9% Sands Macao % -3.2% Adjusted Property EBITDA % 6.7% Venetian Macao % 19.5% Four seasons and Plaza % 7.5% Sands Cotai Central % 317.7% Sands Macao % 11.1% EBITDA Margin (as of net revenues) 33.3% 32.1% 29.5%.3% 32.% 31.6% 32.1% 34.% Venetian Macao 37.1% 36.5% 35.3% 38.7% 39.5% 4.% 4.3% 38.2% Four seasons and Plaza 29.1% 22.5% 28.8% 24.2%.3% 24.% 22.6% 34.2% Sands Cotai Central n.a. n.a. 19.5% 18.1% 22.% 22.4% 25.%.4% Sands Macao 27.4%.6% 26.3% 25.6% 29.1% 31.1%.% 29.5% Net income (GAAP) % 89.1% Net margin (as of net revenues) 23.6% 19.5% 11.%.3% 24.% 22.7% 23.8% 26.8% Net margin (as of total revenues) 22.7% 18.8%.6% 19.5% 23.1% 21.9% 22.9% 25.7% Rolling Chip Volume 28, , , , , , , , % 26.% Venetian Macao 13, , , , , , , , % 26.4% Four seasons and Plaza 7, ,73.2 9,7.3 8,962.5, ,48.1 9,944.3, % 16.6% Sands Cotai Central - - 6,8.6 9,55.2, , , , % 71.7% Sands Macao 7, , , , , ,379. 5, , % -23.3% Non-Rolling Chip Drop 1, , , , , , ,831. 4, % 81.% Venetian Macao 1,99.8 1,5.6 1,.9 1,14.9 1,215. 1, , , % 75.7% Four seasons and Plaza % 145.8% Sands Cotai Central ,35.3 1, , % 163.7% Sands Macao % 18.7% Slot Handle 1, ,2.2 2,625. 3,6.3 3, ,3.9 3, , % 13.6% Venetian Macao 1,66.2 1,24.8 1, , , , , , % -9.4% Four seasons and Plaza % 22.6% Sands Cotai Central ,32.4 1, , , , % 41.4% Sands Macao %.7% 2

3 Quarterly Results Venetian Macao growth continues. Its rolling chip volume was up by 26.4% YoY, in line with Macau s VIP gaming segment recovery. The result is encouraging, in our view, given that the property s profitability is continuing to improve through table optimization. However, strong growth in non-rolling chip drop by 75.7% YoY and 25.8% QoQ to US$2,5.1m is more impressive, given that we expected little cope for mass market improvement due to its already high operating efficiency. Given that the win rate of mass market gaming is much lower than in the past, we believe the growth mainly originates from the premium mass players with more focus on low-margin games such as baccarat. For the Venetian Macao, the average number of gaming tables was up from 54 in Q3 12 to 612, reflecting the addition of tables at the start of the year. Sands Cotai Central is growing faster than expected. Rolling chip volume was up by 71.7% YoY to US$15.6bn, surpassing the Venetian Macao in the past three consecutive quarters. Non-rolling chip drop recorded more impressive growth of 163.7% YoY to US$1,429.3m, leveraging on the new hotel rooms opened. Without the start-up cost of the new property opening in September 12, adjusted EBITDA growth was strong on a YoY basis at 317.7%, to US$224.3m. Construction on the Parisian on schedule. With a 5% replica of the Eiffel Tower and 3, hotel rooms, construction is on progress with a plan to complete in late 15. The capex guidance was maintained at US$2.7bn, with a gaming capacity of 45 tables and 2,5 slot machines. Main Assumptions Top-line growth adjusted up, mainly on the revision of industry assumption: from 15% gross gaming revenue (GGR) growth to 17% in 13E. Our revenue projection reflects our assumption that Macau GGR would grow 17% YoY in 13E, and market share of Sands China will expand by 3ppts to 22% in 13E. We expect the Venetian Macao and Four Seasons and Plaza to grow at the industry growth level. Forecasting 15% GGR growth in 14E. SCC is expected to outperform its peers in the coming two years, and we forecast 7%/44.9%/27.6% growth in net revenue during 13E/14E/15E. Profitability continues improving for Sands China, and we expect the net margin to expand from 19% in 12 to 28.4% in 15E. 3

4 Key Financials Profit & loss (US$m) E 14E 15E Cash flow (US$m) E 14E 15E Net revenue 4,881 6,511 8,947,693 11,872 Profit after tax 1,133 1,236 2,18 2,966 3,376 Gaming tax and levies (2,7) (2,859) (3,459) (4,189) (4,67) Depreciation and amortisation Gaming promoter commissions (259) (3) (441) (533) (58) Change in w orking capital Depreciation and amortisation (273) (354) (369) (391) (429) Other operating cash flow Employee benefit expenses (523) (762) (1,9) (1,57) (1,19) Operating cash flow 2,197 1,7 2,81 3,474 3,914 Other operating expenses (553) (925) (1,337) (1,59) (1,581) CAPEX (1,) (1,15) (954) (1,219) (1,41) EBITDA 1,453 1,633 2,6 3,45 3,85 Proceeds from sale of PPE 6 4 (15) (16) (65) Operating profit 1,2 1,281 2,231 3,14 3,422 Other investing cash flow Interest income Investing cash flow (99) (881) (956) (1,2) (1,448) Interest expense (53) (57) (57) (56) (56) Proceeds from borrow ings 276 (149) 3 (72) 7 Others (22) (2) Share issue 36 Profit before tax 1,135 1,238 2,186 2,973 3,383 Dividends paid (1,1) (1,382) (1,635) (2,224) Tax expenses (2) (2) (5) (7) (7) Other financing cash flow (53) (57) (57) (56) (56) Profit after tax 1,133 1,236 2,18 2,966 3,376 Financing cash flow 243 (1,371) (1,436) (1,763) (2,274) Minority interests Net profit 1,133 1,236 2,18 2,966 3,376 Net change in cash 1,451 (543) Basic EPS (US$) Basic EPS (HK$) Total DPS (HK$) Key ratios E 14E 15E Net revenue grow th (%) EBITDA grow th (%) 97. (.3) Balance sheet (US$m) E 14E 15E Operating profit grow th (%) Cash and cash equivalents 2,491 1,948 2,357 2,848 3,4 Net profit grow th (%) Restricted cash 3 4 EBITDA margin (%) Inventories Operating margin (%) Trade and other receivables ,78 1,289 1,431 Net margin (%) Other current assets ROA (%) Total current assets 3,63 2,753 3,46 4,164 4,499 ROE (%) PPE 6,25 6,657 7,6 7,661 8,44 Net debt to equity (%) Investment properties ,114 1,361 1,662 Quick ratio (x) Intangible assets Current ratio (x) Other non-current assets Interest coverage ratio (x) Total assets,128,387 11,695 13,242 14,615 ST borrow ings Account payables 1,18 1,53 2,9 2,298 2,513 Other current liabilities Total current liabilities 1,262 1,554 2,184 2,4 2,622 LT borrow ings 3,329 3,212 3,92 3,92 3,92 Revenue (US$m) E 14E 15E Other non-current liabilities Sands Macao 1,241 1,2 1,85 1,119 1,124 Total liabilities 4,612 4,81 5,311 5,527 5,749 The Venetian Macao 2,411 2,65 3,319 3,839 4,47 Share capital The Plaza Macao ,228 1,4 1,483 Reserves 5,435 5,56 6,4 7,634 8,786 Sands Cotai Central 951 1,968 2,852 3,64 Shareholders' equity 5,516 5,586 6,384 7,715 8,866 Rooms Minority interests Food and beverage Total equity & liabilities,128,387 11,695 13,242 14,615 Mall Convention, ferry, retail and other BPS (US$) Total revenue 4,881 6,511 8,947,693 11,872 BPS (HK$)

5 Comparable Valuation Table Company Ticker Price 52-Wk Price Range Mkt Cap 3m Avg Turnover 12 13E 14E 12 13E 14E (HK$) (HK$) (US$m) (US$m) (x) (x) (x) (x) (x) (x) SJM HOLDINGS LTD 88 HK / , SANDS CHINA LTD 1928 HK / , GALAXY ENTERTAIN 27 HK / , WYNN MACAU LTD 1128 HK. 19 / 31, MELCO CROWN ENTE 6883 HK / , MGM CHINA HOLDIN 2282 HK / , Simple Avg Mkt Cap Avg PER EV/EBITDA Company Dividends Yield PBR ROE Net Debt/Equity 12 13E 14E 12 13E 14E 12 13E 14E 12 13E 14E (%) (%) (%) (x) (x) (x) (%) (%) (%) (%) (%) (%) SJM HOLDINGS LTD Net Cash Net Cash Net Cash SANDS CHINA LTD GALAXY ENTERTAIN Net Cash Net Cash WYNN MACAU LTD Net Cash Net Cash 46.7 MELCO CROWN ENTE Net Cash Net Cash MGM CHINA HOLDIN Net Cash Net Cash.3 Simple Avg Mkt Cap Avg Source: Bloomberg, CGIHK Research October 17, 13 YTD Share Price Performance 1% % 8% 6% 4% % % -% Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 SJM GEG Sands China Wynn Macau Melco Crown MGM China Source: Bloomberg, CGIHK Research 5

6 % % US$m US$m Key Valuation Metrics Figure 1: Revenue/Operating profit/net profit 14, 12,, 8, 6, 4, 2, Figure 3: Margins E 14E 15E EBITDA margin Operating margin Net margin Figure 5: PER band E 14E 15E Net revenue Operating profit Net profit Nov-9 May- Nov- May-11 Nov-11 May-12 Nov-12 May-13 Share price 12.x 17.x 22.x 27.x Source: Company, Bloomberg, CGIHK Research Figure 2: Revenue Breakdown 15, 12, Figure 4: ROE/ROA , 6, 3, E 14E 15E Sands Macao The Venetian Macao The Plaza Macao Sands Cotai Central Rooms Food and beverage Mall Convention, ferry, retail and other E 14E 15E ROA ROE Figure 6: PBR band Nov-9 May- Nov- May-11 Nov-11 May-12 Nov-12 May-13 Share price 2.x 4.x 6.x 8.x Source: Company, Bloomberg, CGIHK Research 6

7 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 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: We expect the total return on the stock to exceed % over a 12 to 18 month horizon. HOLD: We expect the total return on the stock will be between % to % over a 12 to 18 month horizon. SELL: We expect the total return on the stock will be less than % over a 12 to 18 month horizon. 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 investor, 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: