Forensic Analyst

Jason Yap, CFA

Forensic Accounting

Macau's top gaming stocks <a href="https://www.straitstimes.com/business/companies-markets/macau-casinos-see-188-billion-wipeout-as-china-tightens-control" target="_blank" rel="noopener">lost</a> a record USD18 billion in combined market value on 15 September 2021 after the Macau administration <a href="https://www.ggrasia.com/public-consultation-re-gaming-law-review-from-sept-15/" target="_blank" rel="noopener">announced</a><a href="https://www.ggrasia.com/macau-may-end-casino-sub-concessions-directly-monitor-ops/" target="_blank" rel="noopener"></a> a 45 day public consultation period to discuss revisions to Gaming Laws, which comes as the June 2022 expiration deadline for existing gaming concessions loomed. Amongst others, the abolishment of the sub-concession framework (which could reduce current 6 operators to 3 operators), restriction on distribution of dividend, and Macau government's direct supervision of casino operations drew the most consternation from investors and analysts. The sweeping revisions compound the woes of Macau's casino operators, such as <a href="https://www.smartkarma.com/entities/wynn-macau-ltd" target="_blank" data-smartkarma-citation="entities:473:1" rel="noopener">Wynn Macau Ltd (1128 HK) </a> and <a href="https://www.smartkarma.com/entities/sands-china-ltd-088dbd12-a0e9-4516-a68f-6a3cf8aa065d" target="_blank" data-smartkarma-citation="entities:28515:1" rel="noopener">Sands China Ltd (SCHYY US)</a>, which had already been badly affected by pandemic driven travel restrictions, and which obliterated their gaming revenues.While there were some improvements due to easing of travel restrictions for Mainland travelers in September 2020, gross gaming revenues (GGR) remain a shadow of its past.  The daily average of visitors to Macau during October's Golden Week was <a href="https://www.ggrasia.com/macau-oct-golden-week-daily-average-visits-dip-93pct-y-o-y/" target="_blank" rel="noopener">down 93.7%</a> on daily average in 2020. The decline coincided with new COVID-19 cases confirmed in Macau around the same period. Amongst its peers, <a href="https://www.smartkarma.com/entities/wynn-macau-ltd" target="_blank" data-smartkarma-citation="entities:473:1" rel="noopener">Wynn Macau Ltd (1128 HK)</a>  is the most highly levered and had already dodged a bullet by securing covenant waivers in April 2020 at the peak of the pandemic.In this Insight, we discuss the impact of the proposed revisions and subdued GGR recovery on <a href="https://www.smartkarma.com/entities/wynn-macau-ltd" target="_blank" data-smartkarma-citation="entities:473:1" rel="noopener">Wynn Macau Ltd (1128 HK)</a>'s cash reserves, debt servicing ability, and whether there may be potential breaches of its financial covenants.

Macau's top gaming stocks lost a record USD18 billion in combined market value on 15 September 2021 after the Macau administration announced a 45 day public consultation period to discuss revisions to Gaming Laws, which comes as the June 2022 expiration deadline for existing gaming concessions loomed. Amongst others, the abolishment of the sub-concession framework (which could reduce current 6 operators to 3 operators), restriction on distribution of dividend, and Macau government's direct supervision of casino operations drew the most consternation from investors and analysts. The sweeping revisions compound the woes of Macau's casino operators, such as Wynn Macau Ltd (1128 HK)  and Sands China Ltd (SCHYY US), which had already been badly affected by pandemic driven travel restrictions, and which obliterated their gaming revenues.While there were some improvements due to easing of travel restrictions for Mainland travelers in September 2020, gross gaming revenues (GGR) remain a shadow of its past.  The daily average of visitors to Macau during October's Golden Week was down 93.7% on daily average in 2020. The decline coincided with new COVID-19 cases confirmed in Macau around the same period. Amongst its peers, Wynn Macau Ltd (1128 HK)  is the most highly levered and had already dodged a bullet by securing covenant waivers in April 2020 at the peak of the pandemic.In this Insight, we discuss the impact of the proposed revisions and subdued GGR recovery on Wynn Macau Ltd (1128 HK)'s cash reserves, debt servicing ability, and whether there may be potential breaches of its financial covenants.

Wynn Macau (1128 HK) - Gaming Law Revisions and Impact on Financial Covenants

Global Gaming and Casinos Industry Specialist, Casino Business Review LLC

Howard J Klein

Global Gaming and Casinos Industry Specialist

Casino Business Review LLC

Extensive experience in marketing and development in the Asian gaming market

Global Gaming and Casinos Industry

Equity Bottom-Up

<ul>
<li>With five major China mainland markets expected to re-open by November, we see pent up demand sparking daily visitor footfall to Macau.</li>
<li>Golden Week total arrivals could reach an aggregate 170,000 despite Beijing's warning travelers to stay home. 2019 Golden Week drew 665,000 visitors.</li>
<li>At HK$19.960 a share at writing, market sentiment does not yet appear to recognize the first meaningful easing in China travel bans since the 2020 lockdowns.</li>
</ul>


With five major China mainland markets expected to re-open by November, we see pent up demand sparking daily visitor footfall to Macau.
Golden Week total arrivals could reach an aggregate 170,000 despite Beijing's warning travelers to stay home. 2019 Golden Week drew 665,000 visitors.
At HK$19.960 a share at writing, market sentiment does not yet appear to recognize the first meaningful easing in China travel bans since the 2020 lockdowns.


Sands China Ltd: The Best Value Entry Point in the Sector as EVisa Easing Begins

<ul>
<li>DCF valuation now at $44.51 indicating stock could be 24% undervalued here.</li>
<li>Sentiment on Las Vegas asset sale has turned negative as to timing as some investors believe it was hasty given the recovery of the Vegas market.</li>
<li>Strong balance sheet provides long term solvency with current ratio of 2.1 as rumors of China lockdown easing persist since last week.</li>
</ul>


DCF valuation now at $44.51 indicating stock could be 24% undervalued here.
Sentiment on Las Vegas asset sale has turned negative as to timing as some investors believe it was hasty given the recovery of the Vegas market.
Strong balance sheet provides long term solvency with current ratio of 2.1 as rumors of China lockdown easing persist since last week.


Las Vegas Sands: Totally Asia Facing, Is Held Hostage to Travel Bans Remains Attractive at US$33.98

Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Credit

Sands China's FY 2021 results were acceptable in our view, albeit still poor relative to the pre-pandemic levels. The company's cash flows have improved substantially from FY 2020. We expect Sands China to ease the operating cash burn in FY 2022 and commence mild deleveraging in FY 2023. This is because the company is poised to complete development works on The Londoner Macao in FY 2022 and would have little expansionary capex plans from FY 2023. That said, it would take 1-2 years for Sands China to use net OCF for debt reduction, assuming the company does not pay any dividends in the meantime. As a result, Sands China is unlikely to regain its pre-pandemic leverage metrics until 2024/2025 at the earliest.

 Sands China's FY 2021 results were acceptable in our view, albeit still poor relative to the pre-pandemic levels. The company's cash flows have improved substantially from FY 2020. We expect Sands China to ease the operating cash burn in FY 2022 and commence mild deleveraging in FY 2023. This is because the company is poised to complete development works on The Londoner Macao in FY 2022 and would have little expansionary capex plans from FY 2023.  That said, it would take 1-2 years for Sands China to use net OCF for debt reduction, assuming the company does not pay any dividends in the meantime. As a result, Sands China is unlikely to regain its pre-pandemic leverage metrics until 2024/2025 at the earliest.

Sands China - Earnings Flash - FY 2021 Results - Lucror Analytics

<ul>
<li>There are many factors implicit in going long on Sands China Ltd. Las Vegas recovery cycle is in positive swing, Macau will mimmic that pattern. As a pure play in the space, we see SCL as an outstanding value buy at its current price.</li>
<li>Regulatory threats of government intrusion could be exaggerated at a time when few really know what final public hearings on key issues will be the outcome.</li>
<li>Stock is very attractive here at low end of its 52 week trading range.</li>
</ul>


There are many factors implicit in going long on Sands China Ltd. Las Vegas recovery cycle is in positive swing, Macau will mimmic that pattern. As a pure play in the space, we see SCL as an outstanding value buy at its current price.
Regulatory threats of government intrusion could be exaggerated at a time when few really know what final public hearings on key issues will be the outcome.
Stock is very attractive here at low end of its 52 week trading range.


Sands China Ltd: We're Building a Bull Case on the Rapid Rise of China Vaccination Rates

United States

Sands China Ltd. develops, owns, and operates integrated resorts, retail malls, and casinos. The Company also manages convention and exhibition halls in Macau.

Sands China (SCHYY US)

Wynn Macau (1128 HK) - Gaming Law Revisions and Impact on Financial Covenants

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Las Vegas Sands: Totally Asia Facing, Is Held Hostage to Travel Bans Remains Attractive at US$33.98

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Howard J Klein

Sands China - Earnings Flash - FY 2021 Results - Lucror Analytics

Sands China's FY 2021 results were acceptable in our view, albeit still poor relative to the pre-pandemic levels. The company's cash flows have...

Lucror Analytics

Sands China Ltd: We're Building a Bull Case on the Rapid Rise of China Vaccination Rates

Vaccination rates are soaring in China reaching over 80%. There is a direct link between that, and falling travel restrictions which in turn will...

Howard J Klein