Sands China Profit Misses Views as High Rollers Pull Back
Sands China Ltd. (1928) slipped to a three-week low in Hong Kong trading today after the company reported second-quarter profit that missed analysts’ estimates. Other Macau casino stocks also fell.
The Hong Kong-listed unit of Las Vegas Sands Corp. (LVS) dropped 1.2 percent to close at HK$55.75, the lowest level since June 25. Wynn Macau Ltd. (1128) lost 2.5 percent and Galaxy Entertainment Group Ltd. (27) fell 1.2 percent. The city’s benchmark Hang Seng Index was little changed.
The Macau casino operator controlled by billionaire Sheldon Adelson reported adjusted property earnings before interest, taxes, depreciation and amortization rose 22 percent to $800.6 million, below the $856.5 million average estimates from six analysts compiled by Bloomberg.
The company said margins were impacted by its low win rate from the bets of so-called premium mass gamblers, as well as a special bonus of $29 million accrual for employees to retain staff ahead of the next wave of new casinos to be opened in Macau next year.
“We think investors will be most concerned about negative margin read-through for other Macau companies” as other operators also announced new staff retention plans in the second quarter, Karen Tang, a Deutsche Bank AG analyst, wrote in a note today.
Macau has seen gambling growth slow as high-rollers cut spending amid China’s cooling economy and a campaign against corruption. That’s prompted companies such as Sands China and Galaxy Entertainment to reallocate more resources to the so-called premium mass market.
“During the period when VIP is experiencing a slowdown, our business mix is clearly more defensive than the overall market,” said Adelson, billionaire chairman of both Las Vegas Sands and Sands China, according to a Bloomberg Transcript of an earnings call. Sands China’s gross gaming revenue increased 12 percent against Macau’s casino market that was up 5 percent, he said.
Premium mass-market gamblers, who bet in cash, provide better margins than high rollers because they don’t require junket operators, which charge casino companies a commission to bring in VIP customers and arrange credit for their gambling trips.
Competition will intensify as rivals are also opening new casinos in the world’s largest gambling hub next year.
Sands plans to invest $2.8 billion to build the Parisian resort, featuring a replica of the Eiffel Tower, on Cotai, Asia’s equivalent of the Las Vegas Strip. The resort, which will be its fifth in Macau, is on track to open late next year, the company said today.
Galaxy is spending HK$20 billion on the second-phase expansion of the Galaxy Macau resort and will add as many as 500 gaming tables and 1,300 rooms from the JW Marriott and Ritz-Carlton hotels by mid-2015. It will hire “several thousands” of workers for the will hire “several thousands” of workers for the expansion, Chief Operating Officer Michael Mecca said in March.
Second-quarter net income at Sands China climbed 27 percent to $620.2 million, while revenue rose 15 percent to $2.38 billion, according to the parent company.
Las Vegas Sands reported second-quarter earnings that also missed analyst estimates. Net income rose 27 percent to $671.4 million, or 83 cents a share. Excluding some items, earnings of 85 cents missed the 89-cent average of 19 analysts’ estimates compiled by Bloomberg.
Macau, the only place in China where casinos are legal, faces the risk of more Chinese tourists choosing to go to other destinations.
Macau needs to diversify from its casino gambling roots as it faces greater foreign competition. Chinese tourists are traveling farther and becoming more demanding, Pansy Ho, co-chairman of MGM China Holdings Ltd (2282), told Betty Liu in an interview on Bloomberg Television.
Casino gambling revenue in the city fell for the first time in five years last month as the World Cup tournament diverted some bettors in the former Portuguese colony.
China’s President Xi Jinping’s clampdown on corruption and lavish spending has hit the big spenders who contributed more than 60 percent to Macau casino gambling revenue.
Tighter liquidity, increased scrutiny and a softer property market in China means the industry’s VIP revenue could continue to be “at risk,” Praveen Choudhary, a Hong Kong-based analyst at Morgan Stanley wrote in a note this week.
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