Las Vegas Sands To Post Lower Q2 Earnings Amid Macau Slowdown

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Las Vegas Sands (NYSE:LVS) will report its Q2 2015 earnings on July 22nd. [1] We expect the casino giant to continue to face headwinds from the ongoing decline in Macau gaming and post lower revenues and profits for the quarter. Macau continues to face the heat even after 13 straight months of decline amid the government’s crackdown on corruption, which has kept VIPs away from Macau. As a result, the company has been shifting its VIP gaming tables to mass-market gaming, where the intensity of decline is comparatively lower and the business itself offers much higher margins due to absence of junket operators. Recently, there have been a few positive developments for the casino industry, such as a relaxation of visitation rules to Macau and an uptick in gaming in the last week of June. Given these developments and the supportive measures from Beijing, we believe gaming in Macau maybe at a cusp of rebounding.

Macau casinos continue to face headwinds from declining volumes. The primary reason for this drop is the government’s anti corruption crackdown, which started last year and it has primarily hurt the VIP business of Macau casinos. While visa transit restrictions also contributed to the fall, Chinese government recently relaxed the visitation rules to Macau. The Mainland Chinese residents can now visit Macau twice per month rather than the prior twice per two-month period and the maximum length of any one stay has also increased from five days to seven days. [2] This is important as Mainland China visitors account for around 70% of the total visitation in Macau. Another concern for casinos was the smoking ban and there were reports last week that the government may ease plans to ban smoking rooms on gaming floors. [3] After several months of pain in the industry, there is some positive development from Beijing for Macau and this might bring the recovery in the market.

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Las Vegas Sands largely relies on mass-market gaming and non-gaming sources and it has scaled up these operations in the region. Macau VIP gaming accounts for only 12% of Las Vegas Sands’ value, according to our estimates. VIP gaming will surely be hit hard in the upcoming quarterly results but on the brighter side, non-gaming operations may do well and help offset some of the losses seen on the gaming front. While the company’s Singapore operations have been doing well in the past few quarters, it could be a tough June quarter given an unexpected sharp contraction in the economy. Singapore’s GDP contracted -4.6% (quarter-on-quarter) and most of the forecasts for the full year have now been revised for a slower growth than previously anticipated. [4] We currently estimate Singapore revenues and EBITDA to increase in low-single digit to over $3 billion and $1.5 billion respectively for 2015. Overall, we estimate gross revenues of over $15 billion for Las Vegas Sands in 2015, with EPS of $3.52, which is higher than the market consensus of $3.13, compiled by Thomson Reuters. We currently have a $60 price estimate for Las Vegas Sands, which we will update after the second quarter earnings announcement.


Notes:
  1. Las Vegas Sands’ Press Release, July 17, 2015 []
  2. Macau gaming revenue falls again, but visitation rules eased, Las Vegas Review Journal, July 1, 2015 []
  3. Macau Casinos Surge on Report Government May Soften Smoking Ban, Bloomberg, July 13, 2015 []
  4. Singapore Q2 GDP unexpectedly contracts, stirs talk of monetary easing, Reuters, July 14, 2015 []