Singapore Operations More Valuable To Las Vegas Sands Than Vegas

by Trefis Team
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The Singapore casino gaming market constitutes a little over 20% to Las Vegas Sands’ (NYSE:LVS) value making it the second biggest market for the company. The highest contribution comes from Macau while Las Vegas strip holds little value for the casino gaming giant. This is surprising for a U.S. based company, but it appears that Las Vegas Sands was quick to realize the slowing domestic growth. Therefore, it made some investments in foreign markets relatively early and now seems to be reaping profits from it. However, while Macau market continues to grow, Singapore casino market’s growth is expected to slow down in the coming years. Will this be a problem for the company that owes one-fifth of its value to this market?

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Singapore’s casino gaming revenues reached $5.9 billion in 2011 compared to $6.1 billion for Las Vegas Sands. [1] Singapore is clearly one of the biggest destinations for tourists and gambling enthusiasts, but it appears that the growth is now slowing down. Growth in 2013 is expected to be moderate due to relatively strict government regulations and a decline in the number of foreign visitors. The reason for the latter could be the novelty effect wearing off for the casino resorts. [1] It’s not just about the casino industry, Singapore’s economy, in general, is witnessing a slowdown. As a result, Las Vegas Sands and its competitor Genting Singapore have seen a decline in revenues from the region in recent quarters.

Singapore’s gaming and casino market is reeling under a slowing economy and strict government control with the former being the primary factor. Singapore’s government has imposed certain restrictions to prevent the spread of organized crime and social ills that often plague the casino gaming cities. Does this mean trouble for Las Vegas Sands?

Perhaps not! The company expects to improve the situation by focusing on attracting tourists and visitors from nearby Asian countries. Asia is going to be at the core of company’s strategy. Las Vegas Sands is considering expansion to other regions such as Japan, Korea, Vietnam and Taiwan in Asia. In addition, the company is also looking to expand to Spain, Canada, Brazil and Argentina.

Furthermore, unlike its competitors, Las Vegas Sands hasn’t experienced slowing 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]

However, the Macau gaming market is VIP-centric. The majority of the revenue comes from high rollers or VIPs which account for about 70% of Macau’s total gaming revenue. [3] 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 more than 10% to the market price.

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Notes:
  1. As Singapore’s Casinos Slow, Will the Economy Suffer?, CNBC, Jan 10 2013 [] []
  2. Las Vegas Sands’ Q3 & Q4 2012 Earnings Transcript []
  3. The Top Stock In Gaming, Daily Finance, Aug 29 2012 []
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