Las Vegas Sands increases stake in Sands China
Las Vegas Sands Corp (NYSE: LVS ) said it is increasing its stake in its Sands China unit, the operator of five integrated resorts in Macau.
The Las Vegas-based gaming company said in a regulatory filing with the Hong Kong Stock Exchange (HKSE) that it will acquire a $24.31 million stake in Sands China through a holding company called Venetian Venture Development Intermediate II. .
For example, based on the closing price of HK$20.20 per share reported by The Stock Exchange of Hong Kong Limited on the day of the share purchase transaction, the financing amount corresponds to approximately 96,600,247 shares of total equity, equivalent to approximately 1.19%. The total number of shares outstanding,” the filing said.
Based on this 1.19%, Sands' shareholding in China business increased from 70% to 71.19%.
Sands may be a smart move
The timing of Sands' increase in its Macau holdings could signal to investors that the parent company is optimistic about the value of Sands China shares.
While LVS didn't comment on this in its regulatory filing, the Macau franchisee's shares are currently trading at rock bottom valuations. Some analysts believe this is a cruel twist of fate, as the District's gross gaming revenue (GGR) has steadily increased this year.
But on Monday, shares of five of the six franchise companies, including Sands China, were down at least 20% since Jan. 1, a week before the special administrative region reopened under strict travel restrictions due to the coronavirus. So far this year (through Dec. 4), only MGM China is profitable, with Sands China ranking third among the six companies with a 22% loss.
"We recognize that valuations alone may not be driving stocks in this market, but we have to believe these stocks are oversold. At current levels of free cash flow yields... cash flow alone will pay off MGM, Wynn and The debt of a company like Melco should generate an annual return on equity of around 15%. We see tremendous value in the Macau name," JPMorgan analysts wrote in a recent note.
Sales growth may confirm Sands Moving
Sands' decision to increase its stake in Sands China may prove prescient in 2024, with analysts predicting revenue growth for the Macau operator.
While it may be obvious to link Macau's gross gaming revenue (GGR) growth potential to China's GDP, historical data suggests the correlation is weaker. Citi analyst George Choi noted in a recent note to clients that visitation, gaming spending and time spent together at casinos are more strongly correlated with Macau's massive GGR.
Mr. Choi's comments on total mass market revenue are very important to Sands China because Macau's mass market and high-end mass market are already close to pre-pandemic levels, and Sands China is one of the major operators in these two segments.
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Source: www.casino.org
