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Sands China results weaker than expected, Parisian opening Sep. 13

Sands China saw modestly weaker than expected results in 16Q2, but saw positive growth in its mass / premium segments, say analysts.

In the second quarter of 2016, Sands China reported adjusted property EBITDA of US$488 million, 6 percent below consensus, which was largely due to low hold and volume in VIP, as well as poor performance in non-gaming - particularly in hotels, said Bernstein.

Net revenue for 16Q2 was $1.4 billion, down 16.4 percent year-on-year, 6 percent below their estimate of $1.6 billion, while net income dropped 32.2 percent to $394.4 million in the three months ending June 30.

VIP rolling chip volume declined 27 percent year-on-year. On the other hand, mass and premium mass saw its first year-on-year increase since 2014, said Union Gaming.

“We would attribute the growth that SCL saw in its mass / premium mass segments in June to one primary factor: that June was an easy comp from a new supply perspective in that May 27 was the one year anniversary of the openings of Galaxy Macau Phase 2 and Broadway,” said the brokerage. “Beginning in 4Q16 we are modeling notable mass market growth for SCL on the heels of the opening of Parisian Macao plus the anniversary of Studio City in October,” Union Gaming added.

Las Vegas Sands chairman Sheldon Adelson echoed these comments in his notes: “The operating environment in Macao remained challenging during the quarter, but we do see signs of stabilization, particularly in the mass market.”

In terms of non-gaming performance, while occupancy improved in the Q2 quarter on quarter, it was down compared to 15Q2.

“The company experienced strong visitation in June, which helped improve overall occupancy in the latter part of the quarter. However, room rates were down as competitors remained aggressive on pricing and providing discounts, especially midweek. The company also noted an improvement in the MICE business in Q2, but continued to point out that filling rooms on weekdays remains a challenge,” said Bernstein.

Both brokerages agreed that the key inflection point will be the Parisian opening, which was confirmed for September 13, 2016.

“With the Parisian opening, Sands China's core strength lay in optimizing the critical mass among its interconnected resorts on Cotai. The company is well positioned to capitalize on Macau's paradigm shift to Cotai and to Mass,” said Bernstein.

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