Las Vegas Sands Boosting Holdings in Sands China

Posted on: December 5, 2023, 06:02h. 

Last updated on: December 9, 2023, 01:19h.

Las Vegas Sands (NYSE: LVS) announced it is increasing its holdings in its Sands China unit, the operator of five Macau integrated resorts.

Macau debt
Sands China’s Venetian Macau. Las Vegas Sands boosted its stake in the China unit. (Image: Wall Street Journal)

In a regulatory filing with the Hong Kong Stock Exchange (HKSE), the Las Vegas-based gaming company said it’s purchasing $24.31 million worth of Sands China equity via a holding company known as Venetian Venture Development Intermediate II.

For illustration purpose, based on the closing price of HK$20.20 per Share as quoted on The Stock Exchange of Hong Kong Limited on the date of the Share Purchase Transaction, the Funding Amount equals to the total price of approximately 96,600,247 Shares, representing approximately 1.19% of the total issued Shares,” according to the filing.

Based on that 1.19%, Sands’ ownership of the China unit increases to 71.19% from 70%.

Could Be Smart Move by Sands

The timing of Sands increasing its stake in its Macau business could signal to investors that the parent sees value in Sands China shares.

While LVS didn’t comment to that effect in the regulatory filing, shares of Macau concessionaires are trading at rock-bottom valuations. Some analysts believe that’s a cruel twist of fate because the Special Administrative Region’s (SAR) gross gaming revenue (GGR) figures have steadily increased this year.

Yet as of Monday, shares of five of the six concessionaires, including Sands China, were saddled with declines of at least 20% since January 1, a week prior to the SAR reopening following harsh coronavirus travel restrictions. On a year-to-date basis as of December 4, only MGM China was in the green, with Sands China ranking as the third-best performer of the six with a 22% loss.

“We understand valuations alone may not drive the stocks in this market, but we can’t help but think these stocks are oversold. At the current level of FCF yield … just the cash flow paying down debt should generate ~15% annual returns on equity for names such as MGM, Wynn, and Melco. We see great value in Macau names,” wrote JPMorgan analysts in a recent report.

Revenue Increase Could Validate Sands Move

It’s possible that as 2024 unfolds, Sands’ move to up its stake in Sands China proves prescient because analysts are forecasting top-line growth for Macau operators.

While it might be intuitive to link Macau’s mass gross gaming revenue (GGR) growth potential to China’s GDP, historical data suggest a weak correlation. Visitation, gaming spending, and time spent at casinos together have a more significant correlation with Macau’s mass GGR,” observed Citi analyst George Choi in a recent note to clients.

Choi’s comments on mass-market GGR are important to Sands China because mass and premium mass in Macau is already flirting with pre-pandemic levels, and because Sands China is one of the dominant operators in those two segments.