Morningstar | Narrow-moat Sands China is best positioned to benefit from robust mass-market segment growth.
Sands China is the most defensive play in our Macau gaming coverage, with only a low-teens percentage of its profit coming from the more volatile, lower-margin VIP segment. More than 80% of the group's gaming tables are in Cotai, a popular tourist destination with a critical mass of world-class integrated resorts that continue to take market share from casinos in the Peninsula. The group is confident in paying a high dividend of approximately HKD 1.99 per share in 2016 and 2017, implying a very high dividend payout ratio of over 100% in 2016 and 2017. The high dividend demonstrates its strong cash flow generation and confidence in the group’s earnings outlook and will provide downside protection to investors, in our opinion. We are confident that the Venetian and the Parisian are both thematic properties that will drive tourists to visit and gamble and drive traffic to the group’s interconnected properties in Cotai. After the current phase of casino openings, Sands China will have 12,677 hotel keys, or 45% of Macau casino operators’ total room count, which will be by far the highest. This large hotel customer base will likely visit the group's casinos and nongaming areas. The high room count will also allow Sands China to give complimentary rooms to premium mass and even mid-mass gaming customers, enticing them to stay overnight and gamble more. As the largest integrated resort operator, the group's meetings, incentives, conventions, and exhibitions businesses can drive traffic to its casinos during weekdays, when there are fewer tourists. Sands China's possession of a large amount of nongaming facilities makes it more likely to successfully renew its gaming license, as the government specifies that a major consideration is a focus on helping Macau to diversify from gaming.Sands China and its subsidiaries are principally engaged in the operation of casino games of chance or games of other forms, the development and operation of integrated resorts which contain not only gaming areas but also meeting space, convention and exhibition halls, retail and dining areas and entertainment venues and other ancillary services including ferry operations and other related operations in the Macao Special Administrative Region of the People's Republic of China.
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