Analysts note easing reinvestment in Sands China’s mass segment amid fierce competition for premium players

Macau operator Sands China had seen “reinvestment efficiency improving,” said JP Morgan Securities (Asia Pacific) Ltd in a Thursday note following the first-quarter results of the casino firm’s parent Las Vegas Sands Corp on Wednesday.

“Our analysis shows Sands’ mass reinvestment rate – loosely calculated as contra revenue as percentage of mass GGR [gross gaming revenue] – fell around 100 basis points quarter-on-quarter, to circa 21 percent to 22 percent, snapping a four-quarter rising trend,” wrote JP Morgan analysts DS Kim, Selina Li, and Lindsey Qian.

Vitaly Umansky, senior analyst at Seaport Research Partners, said in a memo that Sands China’s player reinvestment as a percentage of mass table drop, seemed to have fallen 50 basis points quarter-on-quarter.

But he added that “competition for premium players remains intense”. He stated: “We estimate that player reinvestment may be in the high 30s of percent (and higher) for the largest premium mass players in Macau and agent/referral business has been a strong growth driver in the market.”

Mr Umansky further noted regarding Sands China: “Management believes that the reinvestment environment is stabilising, and we do not expect mass reinvestment as a percentage of [gaming] drop to increase in the coming quarters relative to the first quarter.”

Anne Ling and Jingjue Pei of brokerage Jefferies said in a Thursday note that Sands China’s first quarter this year “achieved EBITDA [earnings before interest, taxation, depreciation, and amortisation] growth and sequential margin improvement, while optimising reinvestment levels”.

The firm’s first-quarter adjusted property EBITDA rose circa 18 percent year-on-year, to US$633 million.

JP Morgan observed that Sands China “was the standout share gainer” in the first quarter, among Macau’s six casino concessionaires, with “GGR up 5 percent quarter-on-quarter against a flat industry, pushing its headline share to 25.7 percent,” i.e., up 130 basis points quarter-on-quarter. The institution that was the “highest in over two years”.

Sands China’s market share of mass table and slot business went up 50 basis points to 25.8 percent, estimated JP Morgan. The casino firm’s share of VIP rolling had gone up 250 basis points, to circa 24 percent, “suggesting this isn’t just a luck/mix story, unlike last quarter,” said the institution.

Grant Chum Kwan Lock, chief executive and president of Sands China, had mentioned on the quarterly earnings call: “Our slot and ETG [electronic table game] segment grew by 31 percent year on year and 10 percent sequentially, especially driven by our more mass-orientated properties Parisian [Macao] and Sands [Macao], where you can see the slot-ETG number has grown tremendously.”

CBRE Equity Research observed in a Thursday memo on Las Vegas Sands, that its Macau business was “growing nicely, but margins remain under pressure”.

Analysts John DeCree and Max Marsh wrote: “The hold-adjusted EBITDA margin in Macau declined 200 basis points year-on-year to 29.6 percent as Las Vegas Sands continues to reinvest in service.

“Management expects to continue adding labour to improve service levels over the next couple of quarters. Margins should remain relatively flat this year, but we anticipate total absolute EBITDA growth to continue.”