Goldman Sachs: Lowering Sands China's (01928) target price to HK$19.5 next quarter EBITDA falls short of expectations

The Zhitong Finance App learned that Goldman Sachs released a research report saying that the EBITDA forecast for the next two years will be 7% for the next two years, and the forecast for the next two years will also be fine-tuned. Goldman Sachs maintained Sands China's “buy” rating. The target price was lowered from HK$20.8 to HK$19.5, and the EBITDA valuation was based on 12 times the 2026 predicted corporate value. The bank believes that the current stock price is equivalent to 8.8 times adjusted EBITDA for the second quarter of this year, providing a 7.6% dividend rate, which is attractive for valuation.

Sands China announced second-quarter results. The adjusted EBITDA for the period was US$430 million, far below the bank's and market expectations. It was mainly affected by the abnormally low VIP room win rate (1.35%, compared to 3.58% in the first quarter and 3.3% theoretical value) and the midfield win rate below normal (20.4%, compared to 21.4% in the first quarter). Excluding the win rate factor, the adjusted EBITDA was about US$517 million, down 16% from quarter to quarter and 8% year on year. It was still affected by the diversion of gaming consumption during the World Cup and weak travel trends in the region.

Goldman Sachs pointed out that Sands China's overall gambling market share in the second quarter fell 2.2 percentage points to 24% from quarter to quarter. Among them, VIP room transcoding market share fell 3.5 percentage points to 21.4% from quarter to quarter, and midfield and slot machine market share rose slightly by 0.4 percentage points to 26.3% from quarter to quarter. Management acknowledged the disappointing results for the second quarter and indicated that the negative win rate impact for the second quarter reached US$87 million, the highest in history, but there were no structural reasons why the win rate continued to be low. The bank expects that Sands China's gambling closing market share will rise to 25%, and daily operating expenses will stabilize at US$6.7 million. It predicts that property EBITDA for the third and fourth quarters will rise to US$554 million and US$597 million respectively.