Q1 Earnings Preview: Las Vegas Sands Will Ride High Over Mass Market Gaming Growth In Macau

Las Vegas Sands (NYSE:LVS) will report its Q1 2014 earnings on April 24. We expect the casino giant to benefit from continued strength in Macau gaming, which continued its impressive run into 2014 as visitors flocked to Asia’s gambling hub. More than 770,000 mainland Chinese visitors traveled to Macau during the New Year holidays from Jan. 31 to Feb. 6, reflecting an increase of 23% from a year earlier, according to the Macau Government Tourist Office. ^[1] Macau witnessed 20% jump in gross gaming revenues during the first quarter of 2014 as compared to the prior year quarter. ^[2] We expect Las Vegas Sands to post solid results in the first quarter on the back of continued growth in mass-market gaming, which accounted for 28% of Macau’s gross gaming revenues in the first quarter. Moreover, the VIP gaming market also grew by 13% during the same period. We are eager to see how the company’s Singapore operations pan out given the economy grew by 5.1% over the prior year quarter. ^[3]

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Las Vegas Sands Will Benefit From Mass-Market Gaming Growth In Macau

Macau’s casino market continued its impressive run into 2014 and collected more than $12 billion in gaming revenues during the first quarter, up 20% from Q1 2013. ^[2] While the VIP segment grew by 12.5%, the mass-market gaming surged 39% as compared to the prior year period. Las Vegas Sands will benefit from its diverse properties in the region primarily Cotai, which has been growing rapidly and has captured some of the mass-market and VIP gaming share of the peninsula. While there are many new properties that are being developed in Cotai, only three are currently operational. Las Vegas Sands operates the largest resort in the region. We expect solid growth in the Las Vegas Sands’ mass-market gaming primarily driven by its Cotai property (Also Read – Why Is The Cotai Vision A Boon For Las Vegas Sands?)

We continue to believe that Macau operations will drive growth for Las Vegas Sands in the coming years. The company’s Cotai property, Sands Cotai Central (SCC) appears to have a potential of much more than $1 billion in annual EBITDA. With more than 200 mass market tables to offer, SCC in Cotai, is becoming a hot property in Macau and the arrival of The Parisian in 2015 will add to its offerings in the region.

Singapore’s Economy Expands Weakly

Las Vegas Sands’ business operations consist of leisure and entertainment activities, and can be linked to the state of the economy, tourism and consumer spending. According to an advance estimate released by the Ministry of Trade and Industry, Singapore, Q1 2014 GDP expanded at a seasonally adjusted annualized rate of 0.1% over Q4 2013. ^[3] While the growth was well below the 6% expansion witnessed in the previous quarter, GDP expanded 5.1% over the same period of last year in Q1. The Monetary Authority of Singapore expects GDP to grow between 2.5% and 3.5% in 2014. ^[3]

There are many tourists who come to Singapore from other South-East Asian countries for gaming activities. While the data for visitors in the first quarter is not available, the Singapore Tourism Board forecasts the visitors to increase by 8% in 2014. ^[4]

Singapore is the second biggest market for Las Vegas Sands after Macau, and constitutes roughly 18% of the company’s value, according to our estimates. During Q4 2013, the company saw 8% decline in revenues and 14% decline in EBITDA primarily due to lower rolling chip volume. However, the hotel business continued to be fruitful for the company with occupancy levels of 97% and RevPAR (revenue per available room) of $411 as compared to $362 in the prior year period. It will be interesting to see how the first quarter pans out in the region for Las Vegas Sands.

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1. Visitor arrivals hit one million in Spring Festival Golden Week Year-on-year increase of 13%, Macau Government Tourist Office, February 7, 2014 [↩]
2. MACAU CASINO GAMING REVENUE UP 20% IN Q1 ON MASS MARKET SURGE, Calvin Ayre, Apr 16, 2014 [↩] [↩]
3. Economic activity expands weakly in Q1, Focus Economics, Apr 14, 2014 [↩] [↩] [↩]
4. STB sees up to 16.8m visitor arrivals in 2014, The Business Times, Mar 7, 2014 [↩]