An excerpt on why SJM is currently better investment than Sands.

1) Stability of earnings. Just look at the difference in win-hold volatility between these companies. Sands may have an enviable direct-VIP business that produces margins roughly twice those of the junket business, but it carries a different price: more widely fluctuating revenues. This part of the revenue stream should also, in our opinion, carry a longer-term discount, due to the damage it naturally does to the trust of the junket operators who “own Macau”.

2) Faster earnings growth. Look at the second chart: SJM has been driving revenues to the bottom line faster than Sands has for three consecutive quarters. From 47% of SCL’s quarterly Ebitda number, SJM is now at 61%. We expect that gap to continue to narrow until Sands manages to open Lot 5&6 with more than a handful of gaming tables. Thereafter, the gap will probably widen again, but only until SJM gets its own Cotai properties open, whereupon we think the gap will start closing again.

3) Little or no downside risk remaining. Seriously, what could go wrong at SJM? An SEC or DOJ indictment? Difficulty securing workers for construction and operation of new projects? Approval for new gaming tables under the cap? Obstacles to concession renewal in 2020? We just don’t see it. Management is secure, shareholders are relatively happy and will remain that way while dividend payouts keep rising. Meanwhile, the Gold Group is powering the VIP business while the Grand Lisboa continues to whup the Venetian in yield per mass table. This company knows how to operate in the world’s biggest, fastest-growing gaming market, not just for today, but tomorrow, next year and beyond 2020. And yet its stock trades at multiples significantly lower than Sands China’s. Used with permission & copyright IntelMacau.com