Photographer: Xaume Olleros/Bloomberg

Sands China a Bargain After Battering on High-Roller Revival

  • Sheldon Adelson’s Sands China dogged by VIP gambler revival
  • Outlook good long term as Macau goes mass market: Union Gaming

Cashing in on the tourists and recreational bettors who flock to the gambling enclave of Macau had long been Sands China Ltd.’s recipe for success, but it’s hit a snag.

The so-called mass market -- casual gamblers who visit Macau’s casinos as much for the replicas of European landmarks as the baccarat tables -- has been overshadowed the past three months by a revival in VIP custom, data compiled by Bloomberg Intelligence show. For Sands China, the casino company that pioneered mass in Macau by importing billionaire founder Sheldon Adelson’s brand of Las Vegas-style pizazz, that’s being reflected in the shares - it’s the biggest loser this year on Hong Kong’s Hang Seng Index.

“Lower end mass is something that is very stable when the sector is pretty volatile but it is also a sector that was not that strong in growth compared to others,” said Angelamaria Hanlee, an analyst at China Merchants Securities (Hong Kong) Co. who covers Macau’s casino industry. “The major focus these days is the VIP sector. I think that’s why the market has been losing some interest in Sands China compared to the others.”

Sands China’s retreat is made even starker by fresh signs of frothiness in the Macau casino stock universe, which has been recovering after an anti-graft crackdown helped wipe $146 billion of value from a 2014 peak. Sands China, which reported below-estimate earnings in January despite a mass market-led revival in Macau’s fortunes, is trading near its biggest price discount to the wider Hang Seng gauge since August 2015, missing out on a rally that has seen Hong Kong stocks lead equity gains in Asia this year.

The company is now trading near its cheapest level when looking at projected price-to-earnings to rival Galaxy Entertainment Group Ltd. since 2014.

Sands China, which is controlled by Adelson’s Las Vegas Sands Corp., earned $985 million from mass-market gaming in the third quarter of last year, the most among six Macau casino companies, according to BI data. Galaxy’s mass-market revenue was $642 million, while its takings from VIPs were about one-and-a-half times Sands China’s, the data show.

Adelson’s Asian offshoot may also be a victim of its own success, with last quarter’s disappointing earnings a result of its new casino, the Parisian, sapping mass-market customers from its older Macau operations, Daiwa Capital Markets analysts wrote in a note last month.

Sands China’s 4.3 percent drop in 2017 compares with a 0.8 percent gain in the Bloomberg Intelligence Macau casinos index, which trades at an average of 23 times projected earnings, compared to Sands China’s ratio of 20 times. But the gauge’s surge to a 16-month high in December was the result of a “generally false exuberance” in the market, according to Grant Govertsen, an analyst in Macau at Union Gaming Group.

“We think that the VIP recovery is actually not nearly as strong as some analysts are making it out to be,” he said.

Govertsen says Sands China is a better long-term bet and investors should take advantage of its recent losses to get the shares at a good price. Likewise, Hanlee at China Merchants reiterated her “buy” recommendation at the start of the month.

“The reality is, the government, whether you want to say Beijing or Macau, they’ve endorsed that the future of Macau is mass market,” Govertsen said. “Sands, in particular, is the most leveraged Macau casino company to the mass market.”

— With assistance by Emma O'Brien, and Kana Nishizawa

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