Sands rating upgraded to ‘overweight’ amid many catalysts
Oct 1, 2024 9:29:03 GMT -5
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Post by Blitz on Oct 1, 2024 9:29:03 GMT -5
Sands China rating upgraded to ‘overweight’ amid multiple catalysts: MS
Viviana Chan - September 27, 2024
agbrief.com/news/macau/27/09/2024/morgan-stanley-upgrades-sands-china-to-overweight-amid-multiple-catalysts/
Morgan Stanley has upgraded Sands China’s rating from ‘equal-weight’ to ‘overweight,’ citing several key factors expected to boost the company’s market share and earnings by 2025.
The upgrade is driven by the reopening of key facilities, such as the Arena, hotel, and casino, alongside a significant shift in dividends.
The report, authored by Praveen K. Choudhary, Gareth Leung, and Stephen W. Grambling, highlights the resumption of dividends in 2025 as a major catalyst for Sands China’s stock, which has underperformed by 31 percent year-to-date (YTD). Before the COVID-19 pandemic, the company consistently paid annual dividends of HK$1.99 ($0.26).
The report forecasts a dividend payout between HK$0.70 ($0.09) and HK$1.00 ($0.13) in 2025, yielding between 4.4 percent and 6.3 percent. If Sands China returns to pre-pandemic levels, the dividend yield could reach as high as 13 percent.
The dividend resumption is expected to improve the company’s valuation, which has lagged behind peers like Galaxy Entertainment.
‘We believe dividend resumption in 2025 for Sands in particular will help drive down its valuation discount vs. peers,’ the report notes. The reopening of the Venetian Arena, formerly known as Cotai Arena, along with hotel and casino facilities, is also expected to increase Sands China’s mass gaming gross gaming revenue (GGR) market share from 24.9 percent in 2Q24 to 26 percent by 2025.
The Venetian Macau, Sands China
LVS support and long-term prospects
Another key factor supporting the upgrade is continued backing from Sands China’s parent company, Las Vegas Sands (LVS). The report notes that LVS has been increasing its stake in Sands China, with share buybacks of 1.2 percent in December 2023 and another 0.74 percent in September 2024.
Analysts believe LVS may continue buying shares until its ownership reaches 75 percent, providing downside protection for investors.
Morgan Stanley also switched its preference from Galaxy Entertainment to Sands China, stating, ‘Despite Galaxy’s near-term momentum… we think Sands China provides more compelling upside.’ While Galaxy continues investing in its Phase 4 development, Morgan Stanley expects Sands China’s dividend and market share improvements to outperform Galaxy in the medium term.
The Parisian Macao
Risks and challenges
While the outlook for Sands China appears promising, the report outlines several risks that could impact the company’s performance.
Key concerns include the possibility of lower-than-expected dividends in 2025, with a conservative payout as low as HK$0.50 ($0.064). Such a move would likely disappoint the market, particularly as investors anticipate a return to pre-COVID dividend levels.
Other risks involve the potential underperformance of Sands China’s newly reopened properties, specifically the rebranded Londoner Grand, which may not achieve the expected market share gains. The report also highlights ongoing challenges in the ‘grind mass’ market, which could affect Sands more than its competitors.
Additionally, industry-wide competitive pressures could hurt margins, and overly optimistic forecasts for both the Macau gaming industry and Sands China in 2025 may lead to disappointment.
Viviana Chan - September 27, 2024
agbrief.com/news/macau/27/09/2024/morgan-stanley-upgrades-sands-china-to-overweight-amid-multiple-catalysts/
Morgan Stanley has upgraded Sands China’s rating from ‘equal-weight’ to ‘overweight,’ citing several key factors expected to boost the company’s market share and earnings by 2025.
The upgrade is driven by the reopening of key facilities, such as the Arena, hotel, and casino, alongside a significant shift in dividends.
The report, authored by Praveen K. Choudhary, Gareth Leung, and Stephen W. Grambling, highlights the resumption of dividends in 2025 as a major catalyst for Sands China’s stock, which has underperformed by 31 percent year-to-date (YTD). Before the COVID-19 pandemic, the company consistently paid annual dividends of HK$1.99 ($0.26).
The report forecasts a dividend payout between HK$0.70 ($0.09) and HK$1.00 ($0.13) in 2025, yielding between 4.4 percent and 6.3 percent. If Sands China returns to pre-pandemic levels, the dividend yield could reach as high as 13 percent.
The dividend resumption is expected to improve the company’s valuation, which has lagged behind peers like Galaxy Entertainment.
‘We believe dividend resumption in 2025 for Sands in particular will help drive down its valuation discount vs. peers,’ the report notes. The reopening of the Venetian Arena, formerly known as Cotai Arena, along with hotel and casino facilities, is also expected to increase Sands China’s mass gaming gross gaming revenue (GGR) market share from 24.9 percent in 2Q24 to 26 percent by 2025.
The Venetian Macau, Sands China
LVS support and long-term prospects
Another key factor supporting the upgrade is continued backing from Sands China’s parent company, Las Vegas Sands (LVS). The report notes that LVS has been increasing its stake in Sands China, with share buybacks of 1.2 percent in December 2023 and another 0.74 percent in September 2024.
Analysts believe LVS may continue buying shares until its ownership reaches 75 percent, providing downside protection for investors.
Morgan Stanley also switched its preference from Galaxy Entertainment to Sands China, stating, ‘Despite Galaxy’s near-term momentum… we think Sands China provides more compelling upside.’ While Galaxy continues investing in its Phase 4 development, Morgan Stanley expects Sands China’s dividend and market share improvements to outperform Galaxy in the medium term.
The Parisian Macao
Risks and challenges
While the outlook for Sands China appears promising, the report outlines several risks that could impact the company’s performance.
Key concerns include the possibility of lower-than-expected dividends in 2025, with a conservative payout as low as HK$0.50 ($0.064). Such a move would likely disappoint the market, particularly as investors anticipate a return to pre-COVID dividend levels.
Other risks involve the potential underperformance of Sands China’s newly reopened properties, specifically the rebranded Londoner Grand, which may not achieve the expected market share gains. The report also highlights ongoing challenges in the ‘grind mass’ market, which could affect Sands more than its competitors.
Additionally, industry-wide competitive pressures could hurt margins, and overly optimistic forecasts for both the Macau gaming industry and Sands China in 2025 may lead to disappointment.
