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Sands China Ltd (SEHK: 1928) is a developer, owner and operator of multi-use integrated resorts (IRs) and casinos in Macau. The group owns five properties with casinos and hotel rooms – The Venetian Macao, Sands Macao, The Plaza Macao, Sands Cotai Central, and The Parisian Macao.
Sands also owns Cotai Expo, which is one of the largest exhibition and convention halls in Asia. The group is a subsidiary of casino giant Las Vegas Sands Corp (NYSE: LVS).
With the group being one of the leading casino operators in Macau, I thought it would be interesting to see how it makes money for its investors. Each property has several revenue streams, and casinos are just one aspect of how the group generates revenue.
The segment report provides vital clues on the different divisions Sands China has, and how much each contributes to the overall revenue pie.
The principal business for Sands is to provide entertainment in the form of gambling, and Macau is the only location in China where it is legal for casinos to operate. The group provides mass gaming in the form of slot machines, roulette, and card games.
It also has private rooms for high-net-worth individuals who bet larger amounts per hand. Of the five properties, the Venetian Macao’s casino segment generates the bulk of casino revenue at around 40% and is the flagship property for the group.
The hotel segment allows guests to stay over as they enjoy the facilities and casinos offered by each property. Sands China’s combined properties have close to 13,000 hotel rooms. The group recently completed its suite conversion for The Parisian Macao and was able to charge a higher daily average room rate.
The Shoppes at Venetian is the mall component for the group and features more than 850 shops with well-known retail brands. Sands earns rental revenue from shop operators at its malls, and any increase in rentals will flow directly down to its bottom line.
Food and beverage and others
Food and beverage (F&B) offerings make up ancillary revenue for Sands and are driven by visitor numbers to its properties. Other revenue consists of convention centre bookings by corporates as well as ferry services offered for visitors. These form a minor component of the total revenue for the group.
As can be seen in the above table, the casino division contributes to the bulk of revenue at 80% for both H1 2018 and H1 2019. Next comes the hotel rooms division and this makes up around 8.1% of revenue for H1 2019. The smaller contributors would be the mall and F&B portions with 5.4% and 3.4% revenue contributions, respectively.
The good news is that Sands’ core revenue generator, casinos, saw a 6% year-on-year rise in revenue. This was the main contributor to its 4.8% year-on-year overall revenue increase for the group. Investors now better understand how Sands makes money and can look forward to better days ahead with the recently-reported H1 2019 numbers.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Royston Yang doesn’t own shares in any companies mentioned.