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Investment Overview for Las Vegas Sands (NYSE:LVS)
Below are key drivers of LVS that present opportunities for upside or downside to the current Trefis price estimate for LVS:
Macau VIP Table Games
- LVS Macau Rolling Chip Volume: LVS Macau VIP Rolling Chip Volume has increased considerably in the recent past. It has increased from $43.4 billion in 2007 to $141.7 billion in 2013. In 2007 and 2008, LVS' Macau Rolling Chip Volume underwent substantial increases of 153.6% and 44.5% respectively due to the opening of Venetian Macau in August 2007 and the Four Seasons Macao in August 2008. Trefis expects the LVS' Macau Rolling Chip Volume to continue to increase at low double-digit rate in the coming years. If Macau Rolling Chip Volume reach $600 billion by the end of the forecast period, there could be a 10% upside potential to our estimate for LVS' stock. In a bearish scenario, assuming that the Macau Casino industry starts witnessing slow growth and LVS' Macau VIP Table Game Wagers reach $300 billion by the end of the forecast period, there could be a downside of over 10% to our estimate for LVS' stock. We believe the increasing population of Chinese high net worth individuals (HNIs) and the expected completion of Cotai projects are likely to be the stimulating factors for future growth.
- LVS Macau VIP Table Games EBITDA Margin:LVS Macau VIP Table Game EBITDA Margin has increased from 10.8% to 22.8% between 2008 and 2013. Trefis forecasts EBITDA margins to increase modestly in the coming years. If LVS Macau VIP EBITDA margins reach 35% by the end of the forecast period, there could be a 5% upside potential to our estimate for LVS' stock. In a bearish scenario, assuming that the Macau Casino industry starts witnessing slow growth and LVS' Macau VIP EBITDA Margin reaches 15% by the end of the forecast period, there could be a downside of approximately 10% to our estimate for LVS' stock.
For additional details, select a driver above or select a division from the interactive Trefis split for LVS at the top of the page.
Las Vegas Sands (LVS) is a leading developer, owner and operator of destination casino resorts. It presently operates in the U.S., Singapore and Macau. It operates in Macau and Singapore through its two subsidiaries, Sands China Limited (SCL) and Marina Bay Sands Pte. Limited (MBS) respectively.
The Venetian Las Vegas has 4,028 suites, approximately 110 table games and 1,250 slot machines. It also offers a range of amenities for its guests including a Paiza Club, which offers services and amenities to VIP customers such as luxurious suites, spa facilities and private gaming rooms, a Canyon Ranch SpaClub operated by Canyon Ranch and a theater/entertainment complex. The Palazzo is a 50 floor luxury hotel tower with 3,064 suites and is directly connected to The Venetian Las Vegas and Sands Expo Center. The casino has approximately 140 table games and 1,100 slot machines. Sands Expo Center is one of the largest overall trade show and convention facilities in the US with approximately 1.2 million gross square feet of exhibit and meeting space.
The Sands Macao has approximately 260 table games and 1,100 slot machines. It also includes a 289 suite hotel tower, several restaurants, a spacious Plaza Club, a theater and other services and amenities. The Venetian Macao includes approximately 385,000 square feet of gaming space and has approximately 660 table games and 2,200 slot machines. The resort has a 39 floor hotel tower with over 2,900 suites, approximately one million square feet of retail and dining offerings; a convention center and meeting room complex of approximately 1.2 million square feet and a 15,000 seat arena.
In August 2008, LVS opened the Four Seasons Macao. The Four Seasons Macao includes the Four Seasons Hotel Macao with 360 rooms and suites. The resort has 140 table games and 180 slot machines, 19 Paiza mansions, conference and banquet facilities, and retail space of approximately 260,000 square feet.
In April and September 2012, the company opened phases I and IIA, respectively, of Sands Cotai Central, which is part of our Cotai Strip development. Additionally, LVS opened phase IIB of Sands Cotai Central on January 28, 2013. Upon completion, Sands Cotai Central will consist of a 13.7 million-square-foot 6,400-room integrated resort complex featuring rooms and suites under the internationally-recognized Sheraton, Conrad and Holiday Inn brands. The property includes approximately 300,000 square feet of gaming space with approximately 460 table games and 2,200 slot machines, approximately 800,000 square feet of retail, entertainment and dining space, over 550,000 square feet of meeting facilities and a multipurpose theater.
LVS opened Marina Bay Sands in April 2010. The integrated resort has 2,600 rooms, 160,000 square feet of gaming space with approximately 650 table games and 2,400 slot machines, 1.3 million square feet of convention and meeting space.
On May 22, 2009, LVS opened the casino component of Sands Bethlehem. The resort has 3,000 slot machines, 120 table games and food and beverage offerings, as well as the parking garage and surface parking. Main competitors include prominent firms in the gaming and casino industry such as Wynn Resorts, MGM Resorts, Boyd Gaming, Harrah's Entertainment, SJM and Galaxy among others.
We believe that Macau gaming operations are the primary source of value for Las Vegas Sands because:
Significantly Higher Volume Than Las Vegas Casinos
Macau offers significantly high gaming revenues as compared to the Las Vegas Strip or Singapore. Macau gaming revenues are approximately 7 times higher than that of Las Vegas Strip. In 2013, gaming revenues at Las vegas Strip were $6.5 billion as opposed to $45.2 billion in Macau. This significant difference is due to very high demand for gambling in Macau, which is also the only place in China where gambling is legal. A lot of tourists from nearby countries visit Macau for gambling. Casino business is primarily divided into two categories in Macau, VIP gaming and mass market gaming. Las Vegas Sands has established a critical mass in the region and it is helping the casino giant attract more and more VIP players. Las Vegas Sands is further developing a new casino resort called The Parisian in the Cotai region. The new resort will further enhance Wynn's capacity in Macau and drive growth in the coming years.
Other factors that drive Las Vegas Sands' value are its Singapore and U.S. operations.
Geographically diversified operations
LVS is a global casino resort operator with a presence in the U.S., Macau and Singapore. We believe diversified operations ensure a stable revenue stream for the company. The recent economic recession in the U.S. did not affect LVS severely. Its Asian operations helped it to overcome the economic recession. Despite the recession engulfing world economy, LVS reported a 49% jump in net revenues in 2008.
LVS and Resorts World Sentosa are the only integrated resort operators in Singapore. We believe the existence of duopoly in Singapore gaming industry offers enormous growth potential for the following reasons:
The region is not expected to witness intense competition at least in the near future. Also, Singapore has a locational advantage. It has approximately 5 billion population residing within a 5 hour flight distance. Gaming taxes in Singapore are comparatively lower. VIP games are at 8% approximately and mass market games at 21%. Singapore's resident population is approximately 5 million whereas Macau has approximately 544,600 people. The large resident population provides domestic revenue generation opportunities for the Singapore gaming industry.
Premium brand image
LVS is recognized worldwide as a premium brand resort. It has sophisticated style and offers exquisite luxuries to its customers. It mainly caters to high end gaming customers. LVS has a Paiza Club that offers high end services and amenities to VIP customers, such as luxurious suites, spa facilities and private gaming rooms. It also has a Canyon Ranch SpaClub operated by Canyon Ranch. Marina Bay Sands has been built at an approximate cost of $5.5 billion. The resort offers exquisite luxuries to its customers. It has seven celebrity restaurants and a 15 meter long rooftop swimming pool.
Increasing share of Asia casino revenue
LVS is focusing its efforts on Asia for future growth. In 2010, LVS opened the Marina Bay Sands at Singapore. The following factors strengthen the trend mentioned above:
Macau surpassed the Las Vegas Strip as the world’s biggest gambling hub in 2006, after the government allowed the entry of overseas casino operators. Since then, the region has witnessed unprecedented growth. In 2013, the region collected $45 billion in gaming revenues, far more than the gaming revenues collected at the Las Vegas Strip.
According to a study by PwC, growth in Macau will be fueled by new casinos and revenues in Macau are expected to increase sharply in the coming years to $62.2 billion, representing 34% of total global casino revenues in 2015. Other upcoming regions within Asia like Singapore also offer immense growth potential for the casino industry. In Singapore, LVS enjoys a duopoly in the market with Genting Singapore, the other integrated resort in the region.
A strong Chinese economy with a burgeoning middle class and increasing population of high net worth individuals is helping strengthen Macau's growing gaming industry. Macau and Singapore offer world class gaming infrastructure. All major gaming companies like Melco Crown, Wynn Resorts, MGM Mirage have their presence in Macau.
Japan is in the process of legalizing casinos in the country in order to generate higher revenues. Japan will host 2020 Olympics and if the bill is approved, Japan can be well positioned to gain from casinos during the Olympics times. According to CLSA, Japan could be the second largest gaming market after Macau with close to $40 billion in annual gaming revenues.
Las Vegas gaming market growth slowing down
The economic recession of 2008/2009 slowed down the growth of the Las Vegas gaming industry. Other factors mentioned below also accentuated the slow down:
Other U.S. states like Pennsylvania and Delaware have legalized table games. Similar action by other states could affect the number of tourists visiting Las Vegas. More than 80% of the tourists visiting Las Vegas are domestic. The Las Vegas gaming market has reached a saturation state. Casino operators indulge in intense competition to sustain their margins. Intense competition is affecting the industry margins.
Excess room capacity hitting the markets is expected to pressurize the margins of the gaming industry by pushing average daily rates down. In 2010 end, the Cosmopolitan added about 3,000 additional rooms. Moreover, Asian tourists prefer Macau to Las Vegas on account of two things: firstly it offers world class gaming infrastructure since the advent of foreign gaming companies in Macau in 2006, and secondly it is at a nearby location. The decrease in number of Asian tourists would also affect the Las Vegas gaming industry.
Key infrastructural initiatives underway
The Macau government is reinforcing a series of initiatives in order to drive visitor growth in the region. The gaming industry is a key contributor to Macau's GDP. The government is investing in new transportation links to ease travel for Chinese visitors. According to the Macau Statistics and Census Service Monthly Bulletin of Statistics, approximately 89% of the tourists who visit Macau come from Mainland China, Hong Kong and Taiwan.
The Guangzhou-Zhuhai high-speed railway is expected to improve travel time from Guangzhou to Macau to 40 mins, down from 2+ hours taken by bus. The Macau Light Rapid Transit will link ferry terminals and key locations. It will have 12 stops on the Macau peninsula, 11 stops on Cotai and Taipa and will fully integrate different regions within Macau. It should be completed by 2015.
Also, the Hong Kong-Zhuhai-Macau bridge will connect Hong Kong to Macau, thereby, reducing car travel time from 4 hours to 40 minutes. It is expected to be completed by 2015-2016. The Macau International Airport is presently undergoing capacity upgrade. Its capacity will be increased to handle 12 million people per year almost double from the current capacity of 6 million people. It is expected to be completed by 2017.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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