Weekly Casino Notes: Macau Gaming Revenues Decline For The Fourth Consecutive Month

October 6th, 2014 by Trefis Team
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The past week was eventful for casino operators after the gaming data was released by the Macau government. Macau witnessed continued decline in gaming for the fourth consecutive month in September and gambling revenue fell 11.7%. [1] However, this figure is better than the 13% to 15% decline, the street was expecting. Moreover, Sheldon Adelson, Chariman and CEO of Las Vegas Sands said that the gambling might recover in two months. [2] On that note, we discuss below some key developments in Macau and Las Vegas.

Las Vegas Sands

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Las Vegas Sands (NYSE:LVS) stock extended its fall from the prior week and hit a fresh 52-week low of $59.08 on Tuesday, September 30. The stock bounced back from its lows and closed at $62.49 on Friday. The poor gaming data in Macau has led to a fall in most of the casino stocks in September. The slowdown in Macau gaming is a result of Chinese government crackdown against corruption. As a result, VIP players are staying away from Macau.  However, it must be noted that Las Vegas Sands has scaled up its mass-gaming operations in Macau. By the end of the second quarter, it reduced VIP table capacity by 28% and increased mass tables by 14%. [3] This is a good move since mass-market gaming as compared to VIP gaming is performing much better in Macau. Moreover, it offers much higher margins to the casino operators. For instance Las Vegas Sands mass-market gaming contributes more than 50% to the overall profits in Macau while the contribution from VIP side is only 17%. [4]

We estimate gross revenues of about $18 billion for Las Vegas Sands in 2014, with EPS of $3.61, which is in line with the market consensus of $3.31-$3.98, compiled by Thomson Reuters. We currently have a $78 price estimate for Las Vegas Sands, which is about 25% ahead of the current market price.

Wynn Resorts

Wynn Resorts (NASDAQ:WYNN) like other casino operators is facing the headwinds from a decline in Macau gambling. As compared to Las Vegas Sands, Wynn has a much higher exposure to VIP gaming in the region. We estimate that VIP gaming accounts for more than 40% of Wynn’s stock value. There was a 14% jump in Mainland Chinese visitors to Macau in the first five days of the Golden Week holidays as compared to an 11% rise in the prior year period. [5] This is good news for casino operators in the region. Moreover, a better than expected Macau gaming data may drive the stock price of casino operators such as Wynn Resorts this week.

We estimate gross revenues of over $7 billion for Wynn Resorts in 2014, with EPS of $8.59, which is in line with the market consensus of $7.26-$8.85, compiled by Thomson Reuters. We currently have a $215 price estimate for Wynn Resorts, which is more than 15% ahead of the current market price.

MGM Resorts

Unlike Las Vegas Sands and Wynn Resorts, MGM Resorts (NYSE:MGM) derives majority of its value from its U.S. operations. The company has a wide presence on the Las Vegas Strip and generates a significant portion of its revenues from non-gaming sources. Last week, Nevada released the data for August gaming and Las Vegas Strip saw a slight decline after consecutive gains over the past six months. However, this can be attributed to a tough comparison in the prior year period when the casino percentage hold was an unusually high 18.92%, while this time around it was in its historic range and the figure stood at 15.92%. Looking at the first eight months of 2014, baccarat wagering at the Strip is up 11%, which is good news for MGM Resorts (read more – MGM To Benefit Post An August Gaming Decline As Outlook Still Remains Positive).

We estimate gross revenues of about $11 billion for MGM Resorts in 2014, with EPS of $0.54, which is in line with the market consensus of $0.47-$0.82, compiled by Thomson Reuters. We currently have a $26 price estimate for MGM Resorts, which is approximately 15% ahead of the current market price.

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Notes:
  1. Macau Sept gambling revenue falls for fourth straight month, Reuters, Oct 6, 2014 [↩]
  2. Adelson Sees Macau VIP Gambling Recovery in Two Months, Bloomberg, Oct 2, 2014 [↩]
  3. Las Vegas Sands’ CEO Sheldon Adelson on Q2 2014 Results – Earnings Call Transcript, Seeking Alpha, Jul 17, 2014 [↩]
  4. Las Vegas Sands’ Filings [↩]
  5. Robust Golden Week Visitor Arrivals; Strict Smoking Ban, Barrons, Oct 6, 2014 [↩]