Las Vegas Sands’ Singapore Operations Will Grow Over VIP Gaming

Las Vegas Sands (NYSE:LVS) has diversified its casino operations from the U.S. to Singapore and Macau, and is now eyeing Japan and South Korea. Singapore operations contribute more than 15% to the company’s value, according to our estimates. This makes it the second biggest market for the company. The highest contribution comes from Macau while Las Vegas strip holds little value for the casino giant. The company was quick to realize the slowing growth in the U.S. and expanded in different geographies.  In 2013, Singapore generated $6.1 billion in revenues, a little short of $6.5 billion generated at the Las Vegas Strip. ^[1] We believe Singapore operations will do well in the coming years, especially on the VIP gaming side. However, mass-market gaming will continue to see slower growth driven by tighter regulatory framework for the local gamblers.

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How Are Singapore Operations Trending?

VIP Gaming

Las Vegas Sands’ rolling chip volume has increased sharply from $22 billion in 2010 to $60 billion in 2013. ^[2] Apart from domestic demand, Singapore caters to gaming demand from neighboring countries such as Malaysia and Thailand, aiding to the gaming industry’s overall growth. The company’s hold percentage on VIP gaming has historically been in the range of 2.5% to 3.0%. The figure stood at 2.5% in 2013. ^[2] This translated into estimated VIP gaming revenues of $1.48 billion for the year. We forecast rolling chip volume to continue to grow in the coming years and be northward of $73 billion by 2020. However, we don’t expect any change in the hold percentage. This will translate into annual VIP gaming revenues of $1.82 billion by 2020.

Economic recovery in Singapore will predominantly drive the growth in the casinos. The casino business can be linked to the macroeconomic situation of the country. Higher consumer discretionary spending tends to be positive for casino companies. Singapore’s economy grew by 4.1% in 2013 and the Ministry of Trade and Industry expects it to grow anywhere between 2% to 4% in 2014. ^[3] The growth will gain momentum after 2014 as the external demand will strengthen and boost the exports. Moreover, the rise in international tourists visiting Singapore will aid to the overall growth. In 2013, international visitation went up by 7% to 15.6 million. ^[4]

Mass Market Gaming

Non-rolling chip volume, which represents mass market gaming, has been flat over the past three years. It was $4.44 billion in 2011 and $4.65 billion in 2013. The hold percentage has historically been in the range of 22% to 24%. The figure stood at 23.7% in 2013. ^[2] Going forward, we don’t expect significant growth in the turnover and forecast it to be around $5.7 billion by 2020. Similarly, the hold percentage should remain in its historical range of 22% to 24% in the coming years. This translates into annual revenues of $1.35 billion towards the end of the forecast period.

The reason for our moderate growth outlook on the mass market gaming in Singapore is the tight regulatory framework. The Singaporean government has introduced strict measures 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. This will have an adverse effect on the mass market table games turnover for casino operators in Singapore.

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1. Singapore casinos produce $6 billion in gaming revenue in 2013; market still trails Las Vegas Strip, Las Vegas Review Journal, Feb 21, 2014 [↩]
2. Las Vegas Sands’ SEC Filings [↩] [↩] [↩]
3. Singapore economy grows a faster-than-estimated 4.1% in 2013, Asiaone, Feb 20, 2014 [↩]
4. Statistics & Market Insights Overview, Singapore Tourism Board [↩]