Sands China Losses Mount Up to $336M for Q1

Financial charts.

With the drawing to a close of the first financial quarter of the year, it’s time for companies in the publicly traded domain to put their cards on the table and show exactly how the financial performance has been. The situation in Macau is not as strong as it was just a couple of years ago, and one of the biggest victims of the downturn has been Sands China, reporting a massive loss of $336M for the first quarter of 2022.

Financial charts.

The first quarter of 2022 has been terrible for Macau as the publicly available financial statements reveal 9-digit losses and gloomy macro picture. ©3844328/Pixabay

The number one driver for the losses that are mounting in this space has unfortunately been a recurrence of COVID-19 and an inability to stifle the impact these restrictions are having on the industry. The major loss for the first quarter is in fact a widening loss, as the Sands China operations have been completely disrupted for large portions of the previous reporting period. Sands’ net revenue also took a major hit during this quarter, and slumped to $547M, down from $771 in the year prior. Furthermore, EBITDA went negative for the Macau outfit, posting an $11M loss, this is quite terrible when considering the adjusted EBITDA of $100M just one year prior.

While these results are particularly terrible for the company, there is an un-diluted confidence that remains in the ability of Sands China to recover from this setback. The bad financial performance of the past 12 months has not been attributed to operational shortcomings, rather a broader market disruptive force that is the COVID-19 pandemic, and the strict lockdown measures that have been maintained by the Macau government throughout the pandemic. With the relaxation of these laws when positive COVID-19 cases drop off, there is expected to be a major revival in tourism and travel – thus leading to a revival of the casino sector.

Whilst the performance of Sands China’s Macau outfit has been abysmal for the first quarter of the year, there are reasons to be optimistic about the revival prospects of the group in general. Primarily due to the fact that Sands Singapore maintained a positive EBITDA throughout the first quarter, giving signs that recovery is entirely possible.

Hotel Occupancy Rates Fall to Record Lows

A strong proxy indicator of the strength of the Macau casino sector remains the hotel business by which the millions of international tourists visiting the city each year have a place to stay. When there is a slump in reservations it is often the case that the casinos post a similarly quantifiable slump for their gross gaming revenue.

The exact size of the recent slump in the visitor numbers at the Macau hotels has been around 30% for the first quarter, compared against data collected from a similar timeframe and cluster of hotels from the previous calendar year Q1. The biggest noticeable impact was the major decline in short-term stays, that is people that are passing through the city overnight, or just for the weekend. Frustratingly so for the casinos it is often these types of guests that are spending the largest sums of cash at the casino tables.

The total number of guests required to make the financial situation of Macau’s casinos return to a positive outlook would be around 550,00 guests per month. Currently the city is hosting approximately 365,000 guests, and the numbers have been in a decline when looking at the short term cycle. Whether or not there are operational actions that can be taken to soften the blow of the reduced footfall, or if this is simply a case of waiting for the broader market downturn to subside remains to be seen.

The vision of Macau is to become a major international tourist hotspot where holiday makers, business executives and the wealthy elite can partake in the gaming opportunities on offer throughout the glitzy glass casinos. This vision is quickly beginning to erode, and the dependence on international tourists, junket operators, and lack of diversification in the city’s revenue model have exposed the vulnerabilities that Macau represents as an investment opportunity.

Recent COVID-19 spikes across the mainland have done no favours for the recovery attempts of the city, and there will likely be much stricter lockdown measures still to be brought forward, as the Guangdong province, which is a stone’s throw from Macau braces itself for another wave of infections. It remains completely unclear how the government will decide to proceed with lockdown measures in Macau.

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