HAITONG INT'L: Maintains "outperform" rating on Sands China (01928) with 4Q25 adjusted EBITDA below expectations.

HAITONG INT'L released a research report stating that it maintains a "outperform" rating for Sands China (01928). The bank predicts that the company's net income for 2026-2027 will be 7937/8363 million US dollars, a year-on-year increase of 6.2%/5.4%, with gaming revenue reaching 7652/8082 million US dollars, a year-on-year increase of 6.6%/5.6%, and adjusted property EBITDA of 2483/2643 million US dollars (originally 2601/2784 million US dollars). The adjusted property EBITDA profit margin is 31.3%/31.6%. The company has maintained its position as the market leader in Macau for many years, with the largest scale of entertainment facilities and exhibition centers. The bank gives the company a 2026E 12x EV/EBITDA (originally 12.5x), corresponding to a market value of 180.4 billion Hong Kong dollars and a share price of 22.3 Hong Kong dollars. HAITONG INT'L main points are as follows: LVS releases Sands China's 25Q4 performance The company achieved a net income of 2.058 billion US dollars, a year-on-year increase of 16.2%; adjusted property EBITDA reached 608 million US dollars, a year-on-year increase of 6.5%, with an adjusted property EBITDA profit margin of 29.5%. Overall, the company's net income in 25Q4 met market expectations, but the adjusted property EBITDA was lower than market expectations. Performance differentiation of company's properties, net income of Venetian/Palace of Blessing both saw improvement year-on-year and quarter-on-quarter The company achieved a net income of 2.058 billion US dollars, a year-on-year increase of 16.2%. The gaming/non-gaming businesses contributed 15.4/5.2 billion US dollars respectively, with year-on-year changes of +17.1%/+13.5%. By property, the net income of Venetian/Londoner/Parisian/Blessings Palace/Sands were 0.75/0.70/0.23/0.26/0.08 billion US dollars respectively, with year-on-year changes of +10.3%/+34.9%/+2.2%/+18.4%/-11.6%. The performance of Parisian/Sands remains weak, while the net income of Venetian/Palace of Blessing both saw improvement year-on-year and quarter-on-quarter. Significant growth in gaming revenue, shift in customer structure towards VIP and high-end mass market The company's gaming revenue reached 2.02 billion US dollars, a year-on-year increase of 23.1%, exceeding the industry average growth rate of 15%, with a quarter-on-quarter increase of 9.9%. The gaming revenue of VIP/mass market/slot machines was 0.28/1.54/0.20 billion US dollars respectively, with year-on-year changes of +155.8%/+12.8%/20.4%. In the mass market business, the gaming revenue of regular mass market/high-end mass market was 0.751/0.791 billion US dollars respectively, with year-on-year changes of +11.9%/+13.8%, and quarter-on-quarter changes of -0.4%/+1.9%. The bank believes that the increase in the company's gaming revenue is mainly driven by the growth of VIP and high-end mass market businesses and higher net win rates. The actual net win rate in 25Q4 was 3.92%, compared to 2.45% in 24Q4, with a normalized net win rate of 3.3%. Business structure adjustments combined with rising operational costs led to a decline in adjusted EBITDA profit margin, below market expectations The company's adjusted property EBITDA reached 608 million US dollars, a year-on-year increase of 6.5%, a quarter-on-quarter increase of 1.2%, with an adjusted property EBITDA profit margin of 29.5%, a year-on-year decrease of 2.7 percentage points, a quarter-on-quarter decrease of 2.0 percentage points, the lowest quarterly profit margin since 2024. The adjusted property EBITDA for Venetian/Londoner/Parisian/Blessings Palace/Sands were 2.4/2.0/0.6/1.0/0.04 billion US dollars respectively, with year-on-year changes of -3%/+40%/-20%/+19%/-80%, and corresponding adjusted property EBITDA profit margin of 32.3%/28.8%/23.6%/37.5%/5.3%, with year-on-year changes of -4.4/+1/-6.7/+0.3/-18 percentage points. The bank believes that the decline in the adjusted EBITDA profit margin in 25Q4 was mainly due to two factors: 1) the decrease in the proportion of high-margin mass market business, with VIP and high-end mass market businesses having higher growth rates than mass market business; 2) the increase in operating costs in the fourth quarter due to events such as NBA and increased compensation (extended gaming table service hours). Market share saw improvement year-on-year and quarter-on-quarter The company's market share in 25Q3 was 24.4%, an increase of 0.7 percentage points compared to 23.7% in 25Q3 and an increase of 1.4 percentage points compared to 23% in 24Q4. The market share for mass market and slot machines was 25.2%, a decrease of 0.1 percentage points compared to 25.3% in 25Q3. Risk factors Lower-than-expected macroeconomic growth, stricter Macau gaming regulatory policies, increased competition in the overseas gaming market, etc.