Las Vegas Sands Is Benefiting From Singapore’s Economic Recovery

While the casino companies have been riding high on the success in Macau, Singapore remains a key market for Las Vegas Sands (NYSE:LVS). (Read – Las Vegas Sands Revised Estimates And Outlook)

According to our estimates, Singapore operations contributes more than 20% to Las Vegas Sands’ value making it far more valuable than the company’s U.S. operations. Singapore’s economy has been struggling in the past few years, but it has shown signs of recovering in 2013, and this is aiding Las Vegas Sand’s overall growth. While the recent recovery will boost the revenues in the near term, we believe growth will slow down in the long run due to the government initiatives that were taken in the past year.

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Recovery In Singapore

The Singapore economy has been showing encouraging growth in recent quarters. In the first quarter this year, Singapore’s gross domestic product expanded 1.8% at seasonally adjusted annualized rate. The surprisingly positive GDP number was followed by data that showed industrial production rose 4.7% in April from a year ago. In the recently published data, Singapore’s GDP for the second quarter of the year rose 15.5% on the previous quarter. The Singaporean government also raised its growth outlook for 2013 to between 2.5- 3.5%. A recovery in Singapore economy is great news for casino operator Las Vegas Sands.

Genting Singapore and Las Vegas Sands are the only two casino operators in Singapore. In the recent quarterly filings, Las Vegas Sands saw 6.4% growth in Singapore revenues while earnings were up 7.5%. Growth in Singapore’s economy during the second quarter of 2013 helped the company’s rolling volume to grow by 24% compared to last year’s second quarter. (See – Macau Mass Table Wins Fuel Growth For Las Vegas Sands) While there has been a decline in local visitors, it has been more than offset by more visitors from non-Singaporeans including Indonesians, Malaysians and Chinese. We expect Las Vegas Sands to continue to grow in Singapore in the near term.

Concerns In Singapore

Singapore, a key Asian financial center, has been the victim of slow growth in the past few years amid weakness in key export markets. The Singaporean government has put restrictions on foreign workers leading to higher costs and harder expansion for the companies. While the recent growth in Singapore’s economy was at the fastest pace in more than two years, the risk of slowdown is still a concern. Any slowdown in the economy will directly impact Las Vegas Sands’ performance in the region. The Singaporean government has introduced strict measures during the past year to minimize social costs from the casinos’ success and imposed an entry fee of $82 a day (S$100) for Singapore’s citizens and permanent residents to enter the casinos. Also, there is a monthly limit on casino visits for low-income earners who generally play on mass-market tables. Such measures could mitigate Las Vegas Sands’ growth in Singapore.

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