Sheldon Adelson (left), chairman of Las Vegas Sands Corp, speaks to the media after the listing ceremony of Sands China Ltd, a division of Las Vegas Sands Corp, on the Hong Kong stock exchange yeterday. Sands China Ltd dropped on its first day trading after raising HK$19.4 billion ($2.5 billion) in the city's biggest initial public offering this year. Bloomberg News

HONG KONG: Newly listed Sands China, the Macao unit of casino operator Las Vegas Sands Corp, slumped over 10 percent in its trading debut yesterday as high valuations for the stock and an uncertain outlook for the industry dented investors' enthusiasm.

The stock fell 10.2 percent from its IPO price of HK$10.38 to close the day at HK$9.32, bucking the upward trend of the broad market, which saw the benchmark Hang Seng index jumping about 3 percent following last Friday's 1000-point plunge.

"It could have fared worse had it started trading last Friday. The stock has outperformed expectations, helped by improved market sentiment," said Linus Yip, a strategist with First Shanghai Securities, who has a cautious view on the Macao gaming industry.

"We are cautious about the prospects for the sector in general," Yip said, citing potentially fiercer competition in the industry.

"The gaming industry has showed signs of saturation (overcapacity) since the second half of the year," Yip said.

Conita Hung, head of research at Delta Asia Securities, also has a bearish view on Sands China.

"I do not see a promising prospect for the stock," she said, also citing competition worries.

While the company's plan to use the IPO money to complete construction of an integrated casino-resort project is viewed positively for the firm, the completion of this project in the future, together with other casinos to be opened by rivals in the area will likely trigger fiercer competition in the sector, the analyst said.

Sands China said earlier that it planned to use some HK$3.88 billion of its IPO money to complete construction of the integrated resort in its Cotai Strip development, which stalled due to tighter liquidity during the global financial crisis.

The company, which currently operates three casinos in Macao, including the Venetian, hopes to boost its market share in Macao to over 30 percent from the current 24 percent after completing the Cotai Strip project, Chief Executive Officer Steven Jacobs said earlier during a roadshow for the IPO.

Sands China's relatively higher valuation is also cited for investors' lack of enthusiasm for the stock.

"The stock was priced a bit higher compared with peers," First Shanghai's Yip said.

On a 2010 enterprise value to earnings before interest, tax, depreciation and amortization (EV/EBITDA) ratio, the stock traded at around 13.5 times, compared with Melco Crown Entertainment's 11.5 times and Galaxy Entertainment Group's 12.1 times, according to UBS' estimates.

Delta Asia Securities' Hung also said Sands China's higher valuation made it less attractive among many other choices in the sector.

Sands China and parent Las Vegas Sands raised a total of HK$19 billion from selling a 23.2 percent stake in its Macao business in the Hong Kong IPO.

(HK Edition 12/01/2009 page4)