A premium problem for Sands China

2014/11/4

From：Macau Business Daily

Since the beginning of the year, Sands China has increased the number of its premium mass tables by 25 percent but saw the revenue from these plunge 32 percent. Increased competition means more problems ahead for the mass segment leader in Macau, investors say

Deutsche Bank says it ‘flew a bit under the radar’ during the current earning season: Sands China has a problem with its mass premium segment in Macau.The operator continues to increase the number of tables for its high-end mass players but revenues keep falling. Investors are starting to take notice.
According to a recent Morgan Stanley report on Sands China’s third quarter results, the casino operator increased the number of mass premium tables in Macau from 248 in the first quarter to 314 in the third quarter of this year. That’s a 25 percent jump in only nine months.
The big bet on the upper side of mass market is below investors’ expectations, however. The premium mass win per table in Sands casinos here reached US$17,600 in the third quarter of the year, below the win rate recorded in the second quarter (US$20,700) and first quarter (US$26,000), Morgan Stanley says. Since the beginning of the year, Sands China has made 25 percent more mass premium tables available but revenue per table has decreased 32 percent.

Under pressure

Morgan Stanley said in its report that Sands China’s premium mass is ‘under pressure’, while Deutsche Bank said that it ‘is difficult to ignore the materiality of the mass table margin changes’. In fact, the figures from the third quarter are clear of the troublesome trend affecting the operator who runs casinos here for Las Vegas Sands.
Morgan Stanley recalls that in the third quarter the company’s revenue growth in the high-end mass sector slowed to 13 percent year-on-year, falling behind for the first time the grind mass, whose revenues climbed by 16 percent. Compared to the second quarter, mass premium revenues fell 7 percent in the period between July and September, while the contribution to overall revenues diminished from 44 percent (2Q) to 42 percent  (3Q).
The problem for Sands China is that mass premium has been a big bet to drive up revenues and profits in Macau. Since the third quarter of 2013, the company has moved 100 tables from VIP rooms to mass floors. Around 60 of these have been allocated to mass premium spaces, Deutsche Bank reported. Today, the mass premium segment represents 27.3 percent of all Las Vegas Sands tables in Macau, an all-time record. In the first quarter, premium tables accounted for only 22 percent.
As the market leader for mass segment in Macau, Deutsche Bank analysts says the slowdown of premium mass ‘is not a surprise’ given the increased competition for this type of customer in the territory but Morgan Stanley also reminds that the fact Dragon Palace ‘has not been a success’ is also affecting mass premium performance here.

Red zone

According to Deutsche Bank data, the slowdown of premium mass in Sands China has been even more severe than grind mass. The premium mass segment went to the red zone in the third quarter, with revenues contracting 8.5 percent compared to a year ago and a sharp contrast to the previous quarters. In 2Q, revenues from the segment increased 22.2 percent (year-on-year) and in 1Q went up 68.6 percent.
The profit premium of a premium mass table compared to a base mass table is also diminishing. In the third quarter, premium tables accounted for 34 percent of total profits coming from mass players compared to 40 percent in 2Q and 39 percent in 1Q.
For Sands China, premium mass outlook is not bright until mid-2015. ‘The conclusions are somewhat obvious’, says Deutsche Bank: premium mass is likely to see a negative year through the first half of 2015 from a profit margin perspective. The opening of Galaxy Phase 2 next year will be an additional factor affecting the mass segment of Sands China.

Copyright@Macau Business Daily