Las Vegas Sands Earnings Grow 2% While Revenues Decline Amid A Slowdown In Macau Gaming

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Las Vegas Sands (NYSE:LVS) recently reported its Q3 2014 earnings. A decline in VIP gaming in Macau weighed over the company’s performance and China revenues declined 0.4% to $2.33 billion. However, the EBITDA increased by 3% to $809 million due to mass-market gaming growth. [1]

Las Vegas Sands’ consolidated revenue decreased 1% to $3.53 billion and earnings per share jumped 2% to $0.84 for the quarter. Sands Cotai Central continued to perform well with revenues at the property rising 11% and EBITDA up 19% to $267 million. [1] Cotai has been the driving force for Las Vegas Sands in the recent past, and we believe that it will continue its uptrend in the coming years driven by higher mass-market gaming.

VIP gaming accounted for only 16% of Macau profits while mass-market gaming contribution was around 53%. Given the recent decline in Macau gaming, the company has been shifting its tables from VIP to mass segment for the past few quarters. VIP table count decreased by 21% to 370 tables while mass-market gaming tables increased 9% to 1150 tables during the third quarter. [1] We continue to believe that mass-market gaming will be a key driver for future growth in Macau and for Las Vegas Sands.

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In Singapore, the company witnessed a decline in gaming volume but non-gaming operations did well, especially the hotel, which saw 17% jump in ADR (average daily rate).

We have revised our price estimate for Las Vegas Sands from $78 to $74 reflecting the impact of the recent quarterly earnings.

While There Is A Decline In VIP Gaming, Mass Market Continues To See Double Digit Growth

Las Vegas Sands continues to witness strong growth in the mass-market gaming. The Cotai property saw a 32% jump in non-rolling chip drop while the hold percentage was slightly lower at 22.4%. Mass-market gaming helped the resort post 25% jump in operating income. The casino giant has been consistently outperforming Macau’s overall gaming growth. Macau’s gaming revenues declined by 7% in the third quarter while Sands China saw a 5% decline in gross gaming revenues. [2] Las Vegas Sands has been able to establish a critical mass with its diverse portfolio of properties in the region and is benefiting from the overall gaming growth, especially in the mass-market segment. While VIP gaming is struggling, mass-market gaming continued its uptrend and posted 16% growth for the third quarter. ((Macau VIP down 19 pct y-o-y in 3Q: govt, GGR Asia, Oct 16, 2014))

However, VIP gaming saw immense pressure as it declined 19% during the quarter, primarily due to the ongoing anti-corruption wave, which is keeping many VIP players away from Macau. [3] Sheldon Adelson, Chairman and CEO of Las Vegas Sands said that it might take another 3 to 4 months before growth resumes in the Macau market. [4] It must be noted that Las Vegas Sands has been focused on mass market and has limited exposure to VIP gaming, which accounted for only 16% the company’s Macau profits.

Singapore Casino Volume Declines

Las Vegas Sands’ Singapore casino revenues declined 9% to $574 million in the third quarter. Rolling chip volume declined by 34% while non-rolling chip volume was flat with 2 percentage points growth in hold percentage. Singapore’s hotel continued to do exceptionally well with 99.4% occupancy levels and 17% growth in ADR  to $468 for the quarter. [1] A growth in non-gaming businesses helped the company offset some of the decline in gaming operations. Overall Singapore revenues declined by 5% to $736 million while EBITDA declined by 6% to $352 million for the quarter. [1]

The decline in Singapore casino volume was on expected lines due to a sluggish economy and weak tourism data. Many tourists from other Southeast Asian countries come to Singapore for gaming activities. While data on the visitors in the third quarter is not available yet, international visitation declined by 2.5% for the first seven months of 2014, according to data released by Singapore Tourism Board. [5] We estimate Singapore gross revenues to be around $3.6 billion in 2014.

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 $74 price estimate for Las Vegas Sands, which is about 15% ahead of the current market price.

Notes:
  1. Las Vegas Sands’ SEC Filings [] [] [] [] []
  2. Las Vegas Sands’ (LVS) CEO Sheldon Adelson on Q3 2014 Results – Earnings Call Transcript, Seeking Alpha, Oct 16, 2014 []
  3. Macau VIP down 19 pct y-o-y in 3Q: govt, GGR Asia, Oct 16, 2014 []
  4. ref:1 []
  5. International Visitor Arrivals Statistics, Singapore Tourism Board, Sep 2, 2014 []