Sands China Earnings: Renovation Disrupts Near-Term Performance, but Strengthens Long-Term Outlook

Narrow-moat Sands China’s first-quarter performance was slightly disappointing, owing to the closures of its Cotai arena and some hotel rooms on renovation upgrades, as part of its Londoner phase 2 project. The USD 1.2 billion investment project has caused a near-term market share loss in gross gaming revenue, or GGR, and we anticipate it will continue to affect the firm’s profitability in the coming two to three quarters. However, we think that upon completion, the high-quality assets will help to reposition the property toward premium mass and elevate customer experience, buttressing its intangible asset advantage in the long term and driving additional high-value customer volume and sales. We lower our 2024-25 revenue forecasts by 3%-5% and adjusted EBITDA by 8%-10%, but our longer-term earnings forecasts are unchanged. Hence, we keep our fair value estimate of HKD 27.30 per share.