Macau Slowdown Weighs Over Las Vegas Sands’ Q1 Earnings

Las Vegas Sands (NYSE:LVS) recently reported its Q1 2015 earnings. A decline in Macau gaming weighed over the company’s performance and China revenues declined 35% to $1.77 billion. Macau EBITDA also declined 43% to $531 million. VIP gaming accounted for 13% of Macau profits while mass-market gaming contribution was around 52%. Las Vegas Sands’ consolidated revenue decreased 25% to $3.01 billion and adjusted earnings declined over 30% to $0.66 per share for the quarter. ^[1]

The primary reason for the decline in Macau gaming is the government’s anti corruption crackdown. A wave of high-profile arrests of senior Chinese officials has hurt the VIP business of Macau casinos. Visa transit restrictions, smoking ban and weakening economy added to the woes for casino operators in the region. Moreover, Beijing wants Macau to diversify its economy, largely dependent on gambling, which accounts for 80% of the local government revenues. While the situation in Macau may continue to be fragile over the next few months, we expect the casinos to do well in the medium to long run led by buoyant growth in China’s middle class, which will drive the visitation and mass-market gaming in Macau.

We currently estimate the 2015 EPS to be around $3.52 and have a $69 price estimate for Las Vegas Sands, which we will soon update to incorporate the first quarter earnings.

Sands China Sees Lower Volume Amid Macau Slowdown

A decline in Macau gaming led to lower revenues for Sands China during the quarter. The rolling chip volume was down 60% in Sands Cotai with a win percentage of 2.76%. Looking at the property’s mass gaming, volumes were down 9% and the win percentage was also lower at 20.8% as compared to 22.9% in the prior year period. The hotel occupancy levels also dropped to 83% due to an overall weakness in Macau. The casino giant has been consistently outperforming Macau’s overall gaming growth. Macau’s mass games market saw a decline of 27% while Sands China performed slightly better with 24% drop in mass table win.

Of late there were reports of Macau government proposing to limit the number of Mainland China visitors. However, the company’s management stated that it is not a government decision but a suggestion by one of the ministers with good intentions.  That said, such a limitation appears to be impractical. ^[2] This makes more sense and gives some clarity on this issue, which could have taken a toll on mass gaming if it were to be implemented.

Singapore Operations EBITDA Stable On A Constant Currency Basis

Las Vegas Sands’ Singapore casino revenues were down 7% to $632 million in the first quarter. While the rolling chip volume declined 22% and non-rolling chip volume was down 4%, the non-rolling chip win percentage was higher at 25.3% as compared to 23.4% seen in the prior year period. The rolling chip win percentage was stable at 3.41%. Overall Singapore revenues were down 6% to $785 million while EBITDA was down 5% to $415 million for the quarter. However, the decline can be attributed to currency volatility and on a constant currency basis, EBITDA was up 0.2% for the quarter.

We don’t expect any significant growth in the company’s Singapore operations in the near term due to a decline in international visitors and the currency issue. The international visitation from nearby countries has slowed somewhat because of the unfavorable currency trends. We currently estimate Singapore revenues (excluding food, convention and others) to be around $3 billion in 2015 and an estimated EBITDA margin of 49% will  translate into an EBITDA of a little under $1.50 billion, representing around 25% of the company-wide EBITDA.

1. Las Vegas Sands’ SEC Filings [↩]
2. Las Vegas Sands (LVS) Earnings Report: Q1 2015 Conference Call Transcript, The Street, Apr 23, 2015 [↩]