Brokerage Bernstein has rated shares of both Las Vegas Sands (LVS) and its Macau-based subsidiary Sands China at Outperform, offering upside of 39% and 62% respectively on recovery expectations in its key Singapore and Macau gaming markets.
In a Monday note, analysts Vitaly Umansky and Shirley Yang noted that Singapore’s Marina Bay Sands – the crowning jewel in LVS’s Asian IR portfolio – had delivered better than expected Q2 results with EBITDA run-rate of US$1.2 billion already closing in on its pre-COVID peak of US$1.7 billion.
With Singapore almost fully transitioned to Living with COVID, almost all travel barriers and social distancing measures have now been eliminated – paving the way for full recovery as airlift to Changi Airport draws closer to pre-COVID levels.
“We expect business activity to continue ramping at MBS during the rest of the year and into 2023,” the analysts said.
“We forecast MBS EBITDA to reach over 90% of 2019 in [2023] and growing from there, [setting up] for a further increase once Phase 2 expansion is completed and drawing in more customers.”
Bernstein has set a target price of US$53.00 for LVS shares compared with its price of US$38.75 at close on Monday.
Sands China is seen as an even more compelling investment opportunity, with “risk/reward for Macau over the next 12+ months looking very attractive with concession risks largely eliminated and a phased-in reopening of Macau travel as China comes out of Zero-COVID in 2023.”
Umansky and Yang note that Macau GGR is currently at rock bottom – July saw the SAR record the lowest single month GGR figure since liberalization 20 years ago – but remain adamant that conditions will improve in 2023 assuming China relaxes its zero-COVID stance.
“Our long-term thesis is driven by expected secular growth in Mass with Sands being well positioned to succeed in both premium mass (especially with new product) and in high margin base mass and retail, where it has always been the top operator,” they wrote.
“We are positive on Sands maintaining its leading Macau position retaining ~30% market share, assuming full resumption of travel by end of [2023]. We forecast [2024 and 2025] EBITDA to be above 2019.”
The analysts have set a target price of HK$28 for Sands China, currently sitting at HK$17.28.
They also reference the potential for further upside in the future given LVS’s strong cash position, although any major new investments in the near term look unlikely.
“LVS completed the sale of its Las Vegas operations in February, with after-tax proceeds of US$4.4 billion plus US$1.2 billion in deferred payment,” they said.
“We do not expect any major investments in the near term outside of Singapore, but the liquidity and dry powder at LVS creates some investment optionality and eventual return of capital to shareholders.”
