December 14, 2012 Sands China [1928.HK] Visit Takeaways: Capacity Offers Room for Growth New tables to be added soon; capacity is the driver. The company will have 200 new tables by the end of Q1 2013, to be allocated mainly to the Venetian Macao and Sands Macao, with the rest in Sands Cotai Central (SCC). During this period an additional 2,000 rooms will become available as part of SCC Phase 2B, and a walk-over bridge will be completed. We have previously highlighted the importance of sufficient capacity to meet the demand from strong tourist flow to Macau casino properties, especially in peak seasons: while overall visitor arrivals to Macau stayed flat year-to-date (YTD), we estimate the number under the individual visit scheme (IVS), forming 50% of visitors, grew at 5-10%. Therefore, compared with other relatively smaller casinos, the less crowded Sands China s properties have more room to gain operating efficiency in the long term by capturing demand from the mass-market segment. Continued SCC ramp-up. We observed improved visitor numbers to SCC compared with Q2 and Q3, after the opening of Phase 2A in September. While the overall number of gaming tables for Sands China did not increase, we believe the utilization of extra tables from the Venetian Macao in a new gaming area with 150 mass tables should ensure its outperformance over peers in terms of top- and bottom-line growth. SCC s property awareness is improving and will be further improved with the connection to other Sands China properties through a walk-over bridge. We believe the ramp-up will gradually continue and generate gaming revenue as large as the Venetian Macao by 2015. Less impacted by smoking ban. While we recognize the uncertainties arising from its implementation, we believe relatively large casinos with lower table density will have more flexibility in separating smoking/non-smoking gaming areas. We believe mega properties in Cotai, such as Sands China and Galaxy Entertainment Group (GEG), will be less affected than other Peninsula players, implying less downside risk. Fine-tune forecast, in-line valuation. After adjustment in table allocation we raise slightly the earnings forecast by 2% for 2013E. We raise our target price to HK$35.00, equivalent to 21x PER on our 2013E forecast, and in line with the historical valuation level, a premium to its peers. Trading at 20.8x 2013E PER, we see limited upside potential at present and reiterate our HOLD rating, while dividend payment in early 2013 will remain a catalyst. 2010 2011 2012E 2013E 2014E Turnover (US$m) 4,142 4,881 6,505 8,668 9,737 Net profit (US$m) 666 1,133 1,140 1,727 2,154 Net margin (%) 16.1 23.2 17.5 19.9 22.1 Basic EPS (HK$) 0.64 1.09 1.10 1.66 2.08 Change (%) 150.1 69.7 0.4 51.6 24.7 PER (x) 53.6 31.6 31.5 20.8 16.6 HOLD Close: HK$34.55 (Dec 13, 2012) Target Price: HK$35.00 (+1%) Price Performance Market Cap Shares Outstanding Auditor Macau Gaming Sector US$35,862.5m 8,054.8m PWC Free Float 29.8% 52W range 3M average daily T/O Major Shareholding Source: Company, Bloomberg Angela Han Lee (852) 3698-6318 angelahanlee@chinastock.com.hk John Mulcahy (852) 3698 6889 johnmul@chinastock.com.hk HK$20.35-34.55 US$45.0m Las Vegas Sands (70.3%) Yield (%) - 3.4 3.9 3.4 4.2 1
Key financials 2
Ownership structure Figure 1: Sands China s ownership Source: Company, HKEx, CGIHK Research Comparable Valuation Table 3
Key Valuation Metrics Figure 2: Revenue/Operating profit/net profit Figure 3: Revenue Breakdown Figure 4: Margins Figure 5: ROE/ROA Figure 6: PER band Figure 7: PBR band Source: Company, Bloomberg, CGIHK Research Source: Company, Bloomberg, CGIHK Research 4
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