January 30, 2014 Sands China [1928.HK] Q4 2013 - 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$71.60. We fine-tune our numbers on updated Q4 results, and we refine our earnings projection by 4.2%/0.5% for 2013E/14E. Sands China is trading at 20.3x PER with 3.9% yield on our revised 2014E forecast, lower than the sector s valuation of 22.0x 2014E PER. From the current valuation, we expect Sands China to outperform the sector in next quarter, when the company reports another strong growth on the ramp-up of SCC, after expanding hotel room base in Q1 2013. Our TP implies 0.6x 2014E PEG for 2012-15E EPS CAGR, which we believe undemanding. US$m 2011 2012 2013E 2014E 2015E Total net revenue 4,880.8 6,511.5 8,852.1 11,454.3 12,264.0 Net profit 1,133.0 1,235.8 2,271.2 2,982.1 3,269.1 Net margin 23.2% 19.0% 25.7% 26.0% 26.7% Basic EPS (US$) 0.14 0.15 0.28 0.37 0.41 Basic EPS (HK$) 1.09 1.19 2.19 2.87 3.15 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) 3698-6318 angelahanlee@chinastock.com.hk John Mulcahy (852) 3698 6889 johnmul@chinastock.com.hk HK$33.50-67.15 US$84m Las Vegas Sands (70%) Yield 2.0% 2.3% 4.2% 3.9% 4.3% PBR 11.x 10.8x 9.4x 10.5x 9.3x 1
Quarterly Results US$m 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 YoY QoQ Net Revenues 1,421.5 1,452.7 1,608.5 1,944.5 1,992.9 2,047.5 2,307.1 2,504.6 28.8% 8.6% Venetian Macao 772.8 649.4 772.8 843.0 872.2 894.7 935.2 1,149.1 36.3% 22.9% Four seasons and Plaza 299.6 266.1 224.5 296.2 223.2 274.1 330.0 238.1-19.6% -27.8% Sands Cotai Central - 265.6 295.9 490.7 587.2 584.0 736.6 790.7 61.1% 7.3% Sands Macao 349.1 271.6 315.3 314.6 310.3 294.7 305.3 326.7 3.8% 7.0% Adjusted Property EBITDA 456.4 428.9 488.0 622.3 630.2 657.1 784.3 836.0 34.3% 6.6% Venetian Macao 281.9 229.2 299.0 333.1 348.5 360.9 357.2 433.4 30.1% 21.3% Four seasons and Plaza 67.5 76.6 54.4 89.7 53.6 61.8 112.9 76.8-14.4% -32.0% Sands Cotai Central - 51.8 53.7 108.0 131.5 146.1 224.3 237.8 120.2% 6.0% Sands Macao 107.0 71.3 80.9 91.5 96.6 88.3 89.9 88.0-3.8% -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) 277.4 160.5 326.7 467.0 452.9 487.6 617.9 655.6 40.4% 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 32,938.3 33,354.3 36,035.7 39,332.5 41,152.4 41,935.9 45,387.0 49,541.9 26.0% 9.2% Venetian Macao 13,801.6 11,161.6 11,199.4 12,662.9 11,670.9 11,838.0 14,152.3 16,759.2 32.3% 18.4% Four seasons and Plaza 12,703.2 9,207.3 8,962.5 10,731.5 9,480.1 9,944.3 10,451.7 9,404.3-12.4% -10.0% Sands Cotai Central - 6,820.6 9,055.2 10,170.3 13,622.4 14,335.4 15,550.1 17,565.9 72.7% 13.0% Sands Macao 6,433.5 6,164.8 6,818.6 5,767.8 6,379.0 5,818.2 5,232.9 5,812.5 0.8% 11.1% Non-Rolling Chip Drop 1,919.3 2,218.4 2,532.7 2,981.6 3,242.9 3,831.0 4,584.1 5,305.1 77.9% 15.7% Venetian Macao 1,105.6 1,020.9 1,140.9 1,215.0 1,333.9 1,593.8 2,005.1 2,268.2 86.7% 13.1% Four seasons and Plaza 105.9 91.0 110.8 125.5 110.5 186.1 272.3 330.8 163.6% 21.5% Sands Cotai Central - 389.4 542.0 932.5 1,035.3 1,228.2 1,429.3 1,680.7 80.2% 17.6% Sands Macao 707.8 717.1 739.0 708.6 763.2 822.9 877.4 1,025.4 44.7% 16.9% Slot Handle 2,102.2 2,625.0 3,106.3 3,491.2 3,310.9 3,218.5 3,527.8 4,011.3 14.9% 13.7% Venetian Macao 1,240.8 1,148.8 1,262.8 1,293.7 1,191.5 1,149.7 1,144.4 1,296.3 0.2% 13.3% Four seasons and Plaza 198.2 199.1 214.8 350.4 184.4 182.0 263.4 271.1-22.6% 2.9% Sands Cotai Central - 665.4 1,032.4 1,241.7 1,228.5 1,249.6 1,459.7 1,748.6 40.8% 19.8% Sands Macao 663.2 611.7 596.3 605.4 706.5 637.2 660.3 695.3 14.8% 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
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 Q4 2012 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$2.7bn, with a gaming capacity of 450 tables and 2,500 slot machines. 2) SCC Phase 3, St. Regis Tower construction was reaffirmed. Figure 1: Plan of the Parisian Figure 2: The Parisian construction progress on Jan 27, 2014 3
Key Financials Profit & loss (US$m) 2011 2012 2013E 2014E 2015E Cash flow (US$m) 2011 2012 2013E 2014E 2015E Total net revenue 4,880.8 6,511.5 8,852.1 11,454.3 12,264.0 Net income 1,133.1 1,235.7 2,271.2 2,982.1 3,269.1 Gaming tax and levy (2,070.5) (2,859.3) (3,153.2) (4,227.0) (4,529.1) Depreciation and amortization 272.8 354.0 565.0 572.6 593.4 Inventories consumed (48.6) (69.1) (170.7) (170.1) (181.0) Change in w orking capital (173.8) 61.7 79.9 234.8 41.6 Employee benefit expenses (523.3) (761.5) (1,150.8) (1,718.1) (1,717.0) Other operating cashflow 144.0 249.2 - - - Depreciation and amortisation (272.8) (354.0) (565.0) (572.6) (593.4) Operating cashflow 1,376.1 1,900.6 2,916.2 3,789.5 3,904.1 Gaming promoter commissions (259.3) (330.0) (455.6) (612.2) (656.2) CAPEX (1,009.6) (1,015.0) (613.7) (1,720.1) (1,884.1) Other operating expenses (504.1) (856.2) (1,027.5) (1,130.2) (1,243.3) Proceeds from disposals 6.0 103.6 (183.0) (230.3) (283.2) Adjusted EBITDA 1,576.0 1,977.8 2,991.6 3,687.7 4,028.8 Other investing cashflow 1,006.6 (74.9) - - - Operating profit 1,202.3 1,281.3 2,329.3 3,023.9 3,344.2 Investing cashflow 3.1 (986.3) (796.7) (1,950.4) (2,167.3) Interest expense (52.9) (57.4) (65.2) (46.3) (76.9) Net proceeds from borrow ings 312.5 (186.3) (943.6) 1,528.1 999.0 Interest income 8.0 15.5 11.7 10.5 8.4 Share issue 2.3 11.6 - - - Other non-operating items (22.1) (1.8) - - - Dividend paid - (1,201.5) (1,382.0) (3,713.9) (2,500.5) Pre-tax profit 1,135.3 1,237.6 2,275.8 2,988.0 3,275.6 Other financing cashflow (247.4) (90.4) - - - Income tax expense (2.3) (1.8) (4.6) (6.0) (6.6) Financing cashflow 67.4 (1,466.6) (2,325.5) (2,185.8) (1,501.5) Non-conrolling interests - - - - - Foreign exchange rate adj. 4.0 9.4 - - - Net profit 1,133.0 1,235.8 2,271.2 2,982.1 3,269.1 Net change in cash 1,450.5 (542.8) (206.1) (346.7) 235.3 Basic EPS (US$) 0.14 0.15 0.28 0.37 0.41 Basic EPS (HK$) 1.09 1.19 2.19 2.87 3.15 DPS (US$) 0.15 0.17 0.31 0.30 0.32 DPS (HK$) 1.16 1.33 2.43 2.30 2.52 Key ratios 2011 2012 2013E 2014E 2015E Total net revenue grow th 17.8% 33.4% 35.9% 29.4% 7.1% Balance sheet (US$m) 2011 2012 2013E 2014E 2015E Adjusted EBITDA grow th 29.6% 25.5% 51.3% 23.3% 9.2% Cash and cash equivalents 2,491.3 1,948.4 1,742.4 1,395.7 1,631.0 Operating profit grow th 53.0% 6.6% 81.8% 29.8% 10.6% Inventories 10.5 15.1 24.6 24.4 25.9 Net profit grow th 70.0% 9.1% 83.8% 31.3% 9.6% Account receivables 557.4 784.8 1,066.9 1,380.6 1,478.1 EBITDA margin 32.3% 30.4% 33.8% 32.2% 32.9% Other current assets 3.4 4.5 - - - Operating margin 24.6% 19.7% 26.3% 26.4% 27.3% Total current assets 3,062.6 2,752.8 2,833.8 2,800.6 3,135.0 Net margin 23.2% 19.0% 25.7% 26.0% 26.7% Property, equipment, construction 6,249.7 6,656.7 6,688.9 7,820.4 9,093.8 Return on asset 11.2% 11.9% 21.2% 24.8% 23.4% Investment properties 747.1 913.1 1,113.5 1,360.7 1,661.9 Return on equity 20.5% 22.1% 35.1% 51.9% 50.2% Intangible assets 31.8 16.2 15.3 14.5 13.7 Net debt to equity 16.6% 23.5% 8.9% 42.6% 49.3% Other non-current assets 36.4 48.7 48.7 48.7 48.7 Quick ratio 2.4x 1.8x 1.5x 1.1x 1.2x Total assets 10,127.7 10,387.5 10,700.2 12,044.8 13,953.0 Current ratio 2.4x 1.8x 1.5x 1.1x 1.2x ST borrow ings 80.4 48.9 48.9 48.9 48.9 Interest coverage ratio 22.7x 22.3x 35.7x 65.3x 43.5x Account payables 1,179.9 1,503.3 1,874.8 2,423.1 2,563.8 Other current liabilities 2.2 2.0 - - - Total current liabilities 1,262.4 1,554.1 1,923.7 2,472.0 2,612.7 LT borrow ings 3,328.8 3,211.7 2,268.1 3,796.2 4,795.2 Other non-current liabilities 20.7 35.5 33.0 33.0 33.0 Revenue Breakdown (US$m) 2011 2012 2013E 2014E 2015E Total liabilities 4,611.9 4,801.4 4,224.8 6,301.2 7,440.8 Gaming - Sands Macao 1,241.4 1,209.8 1,162.6 1,409.1 1,445.7 Common stock - par value 80.5 80.6 80.6 80.6 80.6 Gaming - Venetian Macao 2,410.7 2,605.0 3,264.7 3,994.6 4,148.9 Reserves 5,435.3 5,505.6 6,394.9 5,663.0 6,431.7 Gaming - Plaza Macao 579.4 973.0 873.9 1,501.0 1,560.6 Shareholders equity 5,515.8 5,586.1 6,475.4 5,743.6 6,512.2 Gaming - Sands Cotai Central - 950.9 2,291.5 3,299.0 3,781.2 Minority interest - - - - - Gaming - Parisian - - - - - Total equity and liabilities 10,127.7 10,387.5 10,700.2 12,044.8 13,953.0 Non-gaming 649.3 772.8 1,259.4 1,250.7 1,327.6 Total net revenue 4,880.8 6,511.5 8,852.1 11,454.3 12,264.0 Basic BPS (US$) 0.69 0.69 0.80 0.71 0.81 Basic BPS (HK$) 5.33 5.38 6.24 5.54 6.28 4
Comparable Valuation Table Company Ticker Price 52-Wk Price Range Mkt Cap 3m Avg Turnover 2012 2013E 2014E 2012 2013E 2014E (HK$) (HK$) (US$m) (US$m) (x) (x) (x) (x) (x) (x) SJM HOLDINGS LTD 880 HK 23.75 17.04 / 28 16,953 24.1 19.5 17.2 15.6 13.6 12.3 11.2 SANDS CHINA LTD 1928 HK 58.40 33.5 / 67.15 60,526 83.9 49.1 26.7 20.3 38.1 24.0 18.3 GALAXY ENTERTAIN 27 HK 74.40 30 / 84.5 40,394 90.0 42.2 30.6 23.2 31.2 25.3 19.5 WYNN MACAU LTD 1128 HK 32.70 19 / 38.25 21,804 27.4 26.4 24.4 21.5 21.8 20.0 17.5 MELCO CROWN ENTE 6883 HK 108.90 48.35 / 126.8 23,329 0.6 55.3 40.2 31.2 27.7 23.3 20.2 MGM CHINA HOLDIN 2282 HK 30.90 15.46 / 36.15 15,093 17.6 26.0 21.8 18.4 22.1 17.8 15.3 Simple Avg 36.4 27.0 21.7 25.8 20.5 17.0 Mkt Cap Avg 40.8 28.1 22.0 29.5 22.1 17.8 PER EV/EBITDA Company Dividend Yield PBR ROE Net Debt/Equity 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E (x) (x) (x) (x) (x) (x) (%) (%) (%) (%) (%) (%) SJM HOLDINGS LTD 3.8 4.4 4.8 6.6 6.0 5.5 33.9 35.2 35.3 Net Cash Net Cash Net Cash SANDS CHINA LTD 2.3 4.2 3.9 10.8 9.4 10.5 22.1 35.1 38.4 16.2 5.4 2.1 GALAXY ENTERTAIN - - - 14.0 9.6 6.8 21.1 33.8 51.9 20.2 8.9 42.6 WYNN MACAU LTD 3.8 3.9 4.2 16.2 15.4 13.8 61.3 63.0 64.1 Net Cash Net Cash 39.3 MELCO CROWN ENTE - - - 6.2 5.4 4.6 12.3 14.5 15.8 24.0 Net Cash Net Cash MGM CHINA HOLDIN 3.3 3.9 4.1 19.9 17.9 15.1 76.3 82.3 82.0 Net Cash Net Cash 0.2 Simple Avg 3.3 3.7 4.2 12.3 10.6 8.9 37.9 43.8 44.6 Mkt Cap Avg 1.9 2.1 2.6 12.0 10.1 8.3 31.1 39.2 40.5 Source: Bloomberg, CGIHK Research January 29, 2014 Figure 3: PER band 80 70 60 50 40 30 20 10 0 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 80 70 60 50 40 30 20 10 0 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
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