Sizing Up Las Vegas Sands’ Performance In Macau

by Trefis Team
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A little less than 60% of Las Vegas Sands’ (NYSE:LVS) value comes from its operations in Macau, which has a gaming market almost five times the size of Las Vegas and is still growing. The U.S. gaming and casino companies are looking to accelerate their expansion in this region as the Las Vegas strip becomes saturated. Compared to its peers, Las Vegas Sands is doing better in Macau which is evident from its results and the growing contribution of Macau in the company’s overall profits.

Let’s take a brief look at how Macau’s overall market is doing and how Las Vegas Sands is performing within that market.

See our complete analysis for Las Vegas Sands

How Is Macau Doing Overall?

Macau’s casino industry earned close to $38 billion in total revenues in 2012. [1] This figure is not just substantially higher than that for Las Vegas, but also higher than the figure for the total U.S. casino industry. [1] Macau’s casino gaming revenues grew by 13.5% in 2012. While the growth slowed down compared to that for 2011, it still remained healthy. A slowdown in China’s economy impacted the VIP market, but the mass market continues to grow at a fast pace. Compared to 2010, Macau’s casino gaming market grew by 42% in 2011. [1]

China has a huge population and the growing middle class and improving economy will continue to drive the casino industry’s growth in the region. It makes sense for Las Vegas Sands and others to aggressively invest in this market to build a solid foundation for future growth.

Las Vegas Sands’ Integrated Properties In Macau Are An Advantage

Unlike its competitors, Las Vegas Sands hasn’t experienced slower growth in Macau despite a slowdown in the Chinese economy. We believe the company has established a critical mass in the market with its properties and resorts and that has helped it take market share away from competitors such as Wynn Resorts (NASDAQ:WYNN).

Compared to 19.3% in Q3 2012, Las Vegas Sands’ share of gross gaming in Macau increased to just over 21% in the fourth quarter. [2] This comes as some respite as growth in Las Vegas and Singapore remains soft. While the Las Vegas market is saturated resulting in lower profitability, Singapore continues to battle slow economic growth and tighter administrative restrictions on gambling.

In Q4 2012, Las Vegas Sands saw the rolling volume grow by 37% compared to the same quarter a year ago. Additionally, its mass market table win grew by more than 50%. [3] The company is focusing on integrating its various Macao properties including Sands Macao, Sands Cotai Central, Four Seasons and The Venetian. Another establishment, The Parisian, is expected to open by late 2015, as per management.

However, the Macau gaming market is VIP-centric. The majority of the revenue comes from high rollers or VIPs, accounting for about 70% of Macau’s total gaming revenue. [4] This section has suffered losses due to the slowdown in China’s growth. Nevertheless, Las Vegas Sands has expanded rapidly in the Macau region and developed a portfolio of properties to control a significant portion of the market. The market growth remains robust despite some economic headwinds.

Our price estimate for Las Vegas Sands stands at $48, implying a discount of roughly 10% to the market price.

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Notes:
  1. Macau gaming revenues grow in 2012, hit record $38 billion, Las Vegas Review Journal, Jan 2 2013 [] [] []
  2. Las Vegas Sands’ Q3 & Q4 2012 Earnings Transcript []
  3. Las Vegas Sands’ Q4 2012 Earnings Transcript []
  4. The Top Stock In Gaming, Daily Finance, Aug 29 2012 []
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