Sands China's weak debut in Hong Kong on Monday signals fading investor appetite for a casino company with a high valuation and an uncertain outlook, and cooling interest in what was a red-hot sector.
The first-day drop of more than 10 percent was in line with forecasts because of the stock's high IPO price and a weak performance by closest rival, Wynn Macau. Wynn raised $1.6 billion in its Macau unit listing in October.
Sands' $2.5 billion IPO also came as global stock markets digested last week's steep sell-off over a debt crisis in Dubai.
The fever for casino stocks is seen to be over now, said Patrick Yiu, a director at CASH Asset Management. Investors are worrying about the industry outlook, especially keen competition, when more casinos are ready for business.
Sands China, the Macau unit of Las Vegas Sands, opened at HK$9.35, down 10 percent from its IPO price of HK$10.38. By 0405 GMT, the stock had slid further to HK$9.05.
The highly anticipated listing of Sands China, nearly two months after rival Wynn Macau's IPO, offers investors a debt-laden company that promises a strong growth outlook in Macau, the world's biggest and fastest-growing gambling market.
The offering is the latest in a string of share sales across Asia from companies looking to take advantage of a broad stock market rally that is now showing signs of fatigue.
It has something to do with the IPO price -- it was set at a very high multiple ... and the company is not making a lot of profit this year, said Belle Liang, head of research at Core Pacific-Yamaichi International (HK) Ltd.
The other gaming stocks have more attractive valuations.
Wynn also disappointed investors, so they are more cautious, she said. I believe the sector has long-term growth potential, but the risks attached to it are very high.
Wynn Macau gained 5.1 percent on Monday, but still trades 8 percent below its HK$10.08 IPO price.
On a 2010 enterprise value to earnings before interest, tax, depreciation and amortization ratio (EV/EBITDA), Sands China traded at 13.5-15 times, compared with Wynn Macau's about 14 times, according to analysts.
By comparison, Melco Crown Entertainment and Galaxy Entertainment Group traded at 11.5 times and 12.1 times, respectively, according to a UBS research report.
Sands, founded by 76 year-old billionaire Sheldon Adelson, was the first U.S. casino operator to cash in on the Chinese passion for punting when it entered Macau in 2004 after the government opened the gambling market to outsiders.
Macau, the only part of China where casino gambling is legal, generated record gambling revenue in October, even after China curbed travel to the former Portuguese enclave through visa restrictions on travelers from nearby Guangdong province. But investors are skeptical about whether that growth can continue.
The drop (in Sands China) ... reflects that valuations were a bit high, while the outlook for the casino business is not that exciting, said Alfred Chan, chief dealer at Cheer Pearl Investment.
We really doubt people will gamble more in a weak economy.
Investors are also leery about investing in an IPO in which a huge chunk of the proceeds would be used to pay down debt and shareholders' loans, along with financing its other casino projects, analysts said.
Sands, which owns two casino resorts in Macau, including the huge Venetian, has a market share of about 22 percent, the second-largest among Macau casino operators, behind SJM Holdings, according to CLSA. SJM shares were up 2.9 percent.
(Additional reporting by Donny Kwok; Editing by Chris Lewis and Valerie Lee)