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Sands China Jumps After Profit Tops Estimates on Mass Mar

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Sands China Ltd. surged in Hong Kong trading after second-quarter profit beat estimates as the Macau casino operator gained share among mass market gamblers, which helped offset declines in high rollers.

Sands China jumped 7.9 percent to HK$33.35 at close of trading, the highest level since April 21. Other Macau casino companies also climbed, with MGM China Holdings Ltd. rising 6.3 percent and Wynn Macau Ltd. up 5.6 percent. The city’s benchmark Hang Seng Index gained 0.5 percent.

Adjusted property earnings before interest, taxes, depreciation and amortization at the Hong Kong-listed unit of Las Vegas Sands Corp. fell 30 percent to $564.5 million, beating the $508.5 million median estimates of six analysts surveyed by Bloomberg.

“The strength of our premium direct business has offset a lot of the weakness in the junket segment and enabled us to outperform the Macau VIP market,” Sands’ billionaire chairman Sheldon Adelson said in a conference call after the results. He expects a full opening of the $2.7 billion Parisian Macao, Sand’s newest resort in the city, in about 12 months.

Macau’s casino industry has fallen for more than a year hit by China’s economic slowdown and campaigns against corruption that prompted Chinese high-stakes bettors, or VIPs, to avoid the city. The downturn has eased since February, and a surprise move by the Chinese government to relax traveling rules to Macau gave hope that casinos are due for a recovery.

Margin Resilience

Sands China’s earnings “handsomely beat consensus,” Karen Tang, analyst at Deutsche Bank AG, wrote in a note Thursday. “We see Sands’ second-quarter margin resilience as truly remarkable, but company-specific. We still expect margin decline for the other operators which have less room for cost rationalization.”

Sands China reported adjusted property EBITDA margin improved 150 basis points to 31.7 percent quarter on quarter. The company has improved margins by cutting marketing and labor costs, Las Vegas Sands President Robert Goldstein said on the conference call.

“What you see in Macau very clearly, it’s a mass market, it’s premium mass,” Goldstein said. “I hope the junkets resurrect but right now it doesn’t look promising.”

Second-quarter net income at Sands China dropped 37 percent to $388.7 million, while revenue fell 26 percent to $1.77 billion, according to the parent company.

Visa Easing

Sands China lifted its share of mass market gambling revenue in the second quarter to 31.8 percent from 31 percent in the first quarter, Barclays Plc analysts led by Phoebe Tse wrote in a note. “We expect its mass revenues to grow again as we believe further restrictive policies are ending,” she said.

Mainland Chinese passport holders were told they could visit Macau more frequently and stay longer while transiting the city, reversing a policy that was imposed a year ago.

Still, visitors to Macau in June fell 7.6 percent to 2.25 million, the lowest level since September 2012, according to data from the Macau government.

The new casinos offer hope for the companies, which are focusing more on the mass market gamblers, a segment that is generally more stable and profitable, Bloomberg Intelligence analysts Margaret Huang and Tim Craighead wrote on July 16.

(Updates share prices in second paragraph.)
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