Sands China Misses Forecast on China Slowdown, Rival Casinos

Updated on
  • Macau casino operator's first quarter profit fell 2.5 percent
  • CEO Adelson sees downturn as temporary, confident of Parisian

Rising Competition Hurts Sands China Earnings

Sands China Ltd., the Macau-based casino unit of Las Vegas Sands Corp., reported first-quarter profit missed analysts’ estimates as China’s economic slowdown hurt visitor spending, even as its billionaire chairman Sheldon Adelson saw future improvement from mass market gamblers and tourists.

The shares slumped in Hong Kong trading Thursday. Sands China’s adjusted property earnings before interest, taxes, depreciation and amortization shrank 2.5 percent to $517.9 million from $531 million a year earlier, the Las Vegas-based parent said in a statement Wednesday. That compares with the $547 million median estimate of four analysts surveyed by Bloomberg.

“The mass market has increased. It’s performed better, and I think we can look forward to more of that and as far as the non-gaming is concerned, people have to eat, they have to sleep. They want to be entertained.” Adelson said in a conference call. “There are non-gaming elements that I think will pick up again and do better in the future.”

Macau has seen tightened money flows as the $30 billion casino industry struggles with almost 22 months of slumping revenue. Chinese President Xi Jinping’s anti-graft campaign, as well as heightened scrutiny of junket operators, have sent gambling revenue plunging. Operators such as Galaxy Entertainment Group Ltd. and Wynn Macau Ltd. are turning to tourists by building new resorts.

Sands China fell as much as 4.9 percent to HK$29.05, compared with the 0.7 percent rise in the benchmark Hang Seng Index. The shares have plunged about 48 percent since June 2014, when Macau reported the first drop in gross gaming revenue after China’s government launched its crackdown on corruption.

“Sands China’s first quarter is weaker than expected, primarily due to poor performance in non-gaming business and higher bad debt expense,” Sanford C Bernstein & Co LLC’s analysts led by Vitaly Umansky said in a note after the results. While the gaming business is stabilizing, its profit margin contracted on lower retail rental income and lower hotel occupancy rate, the analysts wrote.

‘Pretty Depressing’

Chinese tourism and consumer numbers are “pretty depressing across the globe” and softer than the company had hoped in Macau, said Las Vegas Sands Chief Operating Officer Robert Goldstein on the call, promising a return to better results in the second quarter.

Sands China is targeting to open its $2.7 billion Parisian Macao in mid-September this year, featuring non-gaming aspects such as retail shops and meeting space in addition to the casino, even as it faces intensifying competition including from Wynn Macau, whose project is scheduled to start in June after a series of construction delays.

Retail sales in Macau is being hurt by China’s economic slowdown which “is affecting the amount of money that people are spending,” Las Vegas Sands chairman Adelson said on the call. Still, the casino tycoon is adamant that the impact is temporary.

“I don’t see that this is going to be permanent. When we open the Parisian I’m completely confident, more than confident,” said the 82-year-old Adelson, who is also chairman and chief executive officer of Sands China. “Everything is cyclical -- we’ve been in Macau for 12 years now, and there have been times over the 12 years that people thought that the business was going down, and then it’s going to go up.”

Non-Gambling Business

Despite the downturn, Sands China “stands out among Macau casino operators” for its focus on the mass market and significant non-gambling business, which have helped support its higher profitability compared with its peers during the last two year’s gambling downturn, said Bloomberg Intelligence analyst Tim Craighead.

Sands China gained the most market share in the first quarter among Macau operators as February’s week-long Lunar New Year holiday boosted business, Credit Suisse analysts led by Kenneth Fong wrote in a note on April 19. The company’s focus on the mass market helped lift its share to 23.3 percent from 22.5 percent a quarter earlier, they wrote.

The Parisian plans to attract visitors with facilities such as a half-size Eiffel Tower replica accessible to the public before September’s official opening, Sands China President and Chief Operating Officer Wilfred Wong said in February. The company is hoping the Macau government will allocate 250 or more new gambling tables for the project, he said in an interview.

Las Vegas Sands’s profit fell to 45 cents a share, excluding some items, the company said Wednesday, missing the 63-cent average of analysts’estimates compiled by Bloomberg. Revenue shrank 9.8 percent to $2.72 billion, missing projections of $2.88 billion.

(Updates with share reaction in fifth paragraph, analyst comment in sixth paragraph.)
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