GGRAsia – Sands China 2Q EBITDA down q-o-q amid low hold, renovation

Sands China 2Q EBITDA down q-o-q amid low hold, renovation

Jul 25, 2024 Newsdesk Latest News, Macau, Singapore, Top of the deck

Macau casino operator Sands China Ltd reported adjusted property earnings before interest, taxation, depreciation and amortisation (EBITDA) of US$561 million for the three months to June 30. Such EBITDA was up 3.7 percent from a year earlier, but down 8.0 percent sequentially.

On a United States-GAAP basis, the firm’s second-quarter net revenue rose by 7.7 percent year-on-year, to US$1.75 billion, according to an announcement filed on Thursday in Hong Kong, following the parent reporting on Wednesday its results for the period. Net revenue fell by 3.3 percent from the first quarter this year.

Sands China’s second-quarter net income increased by 31.6 percent from a year ago, to US$246 million. Income was down 17.2 percent from the preceding quarter.

“Low hold on rolling play in Macau negatively impacted adjusted property EBITDA by US$4 million,” stated the parent Las Vegas Sands Corp, referring to VIP play.

Investment analysts attributed some of the weakness during the second quarter to disruption linked to property renovations at the British-themed The Londoner Macao property in Cotai.

Phase II of the transformation of The Londoner Macao has a price tag of US$1.2 billion, according to the casino firm. It includes the renovation of the Sheraton and Conrad hotels, as well as the revamp of the Pacifica casino space.

The company also closed in January the Cotai Arena at the Venetian Macao casino resort for renovation.

“Disruption impact will peak in the third quarter of 2024, with new Londoner Grand casino and suite capacity and the Venetian Cotai Arena expected to be back online by December 2024,” said Las Vegas Sands.

JP Morgan Securities (Asia Pacific) Ltd said in a Thursday note that Sands China’s second-quarter results “came in 3 to 4 percent below consensus, as the Londoner Phase 2 renovation had a bigger disruption” than what expected by the investment community.

Sands China’s “property EBITDA fell 8 percent quarter-on-quarter to US$561 million, which underperformed the industry’s by minus 4 percent quarter-on-quarter in the second quarter,” wrote analysts DS Kim, Mufan Shi and Selina Li.

“There was a negative VIP luck impact, but even its luck-adjusted EBITDA (US$565 million) fell short of Bloomberg Finance L.P. consensus (US$583 million) by 3 to 4 percent,” they added. “The miss was somewhat expected, but it’s still disappointing since the expectations had already been edged down during the quarter.”

Weaker margins

According to the brokerage, Sands China’s EBITDA downside “came from weaker margins, down 230 basis points quarter-on-quarter to 32.1 percent”.

The casino firm’s “operational expenditure control was fine (minus 2 percent quarter-on-quarter to be 10-percent below pre-Covid levels), but its blended reinvestment rates … moved up quarter-on-quarter and weighed on second-quarter margins,” suggested the institution.

It added: “The key reason behind this, in our view, was the mix shift toward lower-margin businesses across the board – that is, among segments (from mass and non-gaming to VIP), within sub-segments (from unrated and grind mass to rated and premium mass), and across properties (from Londoner/Venetian to Parisian/Sands Macao).”

“We believe these reflect the disruption from the renovation projects … and thus could continue to weigh on its margin until year-end,” stated the JP Morgan team.

Citigroup analysts George Choi and Ryan Cheung said in a Wednesday memo that they expect Sands China to post a better third-quarter performance, as “positive seasonality” is likely to “offset bigger disruption” from The Londoner Macao renovation.

“We are forecasting a 3-percent quarter-on-quarter increase in third-quarter 2024 property EBITDA, despite having baked in a bigger disruption impact at Londoner, expecting its [the complex’s] EBITDA to fall 15 percent quarter-on-quarter,” they added.

At Las Vegas Sands’ other Asian operation, Marina Bay Sands in Singapore, second-quarter adjusted property EBITDA was US$512 million, up 18.5 percent from a year ago.

“High hold on rolling play at Marina Bay Sands positively impacted adjusted property EBITDA by US$64 million,” noted the parent in a Wednesday filing. Nonetheless, adjusted property EBITDA was down 14.2 percent from the first quarter.

Marina Bay Sands’ net revenue rose 9.8 percent year-on-year in the second quarter, to nearly US$1.02 billion. Revenue was down 12.1 percent from the preceding quarter.

Las Vegas Sands paid a quarterly dividend of US$0.20 per common share during the second quarter. The parent’s next quarterly dividend of US$0.20 per common share will be paid on August 14. Sands China is yet to resume dividend payments.

The parent company reported net income of US$424 million for the three months to June 30, on net revenue that rose by 8.7 percent year-on-year, to US$2.76 billion.

Consolidated adjusted property EBITDA for Las Vegas Sands was US$1.07 billion in the April to June period, compared to US$973 million a year earlier. Judged sequentially, group-wide adjusted property EBITDA was down 11.1 percent.