Continued Headwinds At Macau Will Weigh Over Las Vegas Sands’ Q3 Performance

October 20th, 2015 by Trefis Team
+9.49%
Upside
50.49
Market
55.28
Trefis
LVS: Las Vegas Sands logo
LVS
Las Vegas Sands

Las Vegas Sands’ (NYSE:LVS) will report its Q3 2015 earnings on October 21st. [1] Overall Macau gaming revenues declined over 34% during the third quarter as players continued to stay away from the world’s largest gambling hub amid government’s anti-graft measures. Accordingly, the revenue decline for Las Vegas Sands could be as steep as 25%, as compared to the prior year period. The past quarter was rough for Macau casinos due to concerns on a liquidity crunch for casino players, amid junket issues. However, of late, there have been a few positive developments in Macau, which points towards a stronger Q4. Casino stocks saw a sharp rally in the first week of October amid hopes of stimulus from Beijing and strong growth in tourist arrivals. This, in turn, fueled Macau’s gross gaming revenues for the first 11 days of October. [2] We wonder if these developments could bring in recovery sooner than later.

The primary reason for this decline in Macau is low gaming volumes amid government’s anti-graft measures that were rolled out last year. However, even Beijing is now willing to provide stimulus to various sectors as China’s economic growth rate is slowing down below the government’s desired range. [3] This is the reason why casino stocks suddenly picked up steam in first week of October. Looking at Las Vegas Sands, its stock has surged over 30% so far in October.

Looking at Q3, we’ll be closely watching for Las Vegas Sands’ reported EBITDA margins. In Q2, the margins came in higher due to cost efficiencies. Higher margins in Q3 can bolster the bottom line, and this may go very well with the investors.

Relevant Articles
  1. With The Stock Flat This Year, Will Q1 Results Drive Las Vegas Sands Stock Higher?
  2. Down 13% In Last Six Months, Will Macau Recovery Over Q4 Drive Las Vegas Sands Stock?
  3. Las Vegas Sands Stock Has Remained Flat This Year Despite Macau Recovery. What’s Next?
  4. Macau Recovery Will Drive Las Vegas Sands Q2 Results
  5. Singapore Strength And Macau Rebound Drive Las Vegas Sands Q1. What’s Next For The Stock?
  6. Is Las Vegas Sands Stock A Buy With Macau On Cusp Of Recovery?

Now most of the weakness in Macau market is on VIP front while the mass-market gaming has comparatively been better. This is favorable for Las Vegas Sands, which has a higher profit reliance on mass gaming and non-gaming operations. Accordingly, this will help the company offset some of the losses seen on the VIP gaming front.

We currently estimate Las Vegas Sands’ VIP gaming turnover (Rolling Chip Volume) will decline from $140 billion in 2014 to around $90 billion for 2015. Similarly, we expect mass market gaming drop (Non-rolling Chip Volume) to decline from $22 billion in 2014 to around $16 billion in 2015. Looking forward, we estimate a pickup in revenues, primarily due to increased visitation to Macau, growing income levels and opening of Sands’ new property in Cotai.

Las Vegas Sands’ Singapore operations did well in Q2 on constant currency basis and it is likely to continue this trajectory. Singapore’s GDP also remained stable for Q3. We currently estimate Singapore revenues and EBITDA to decline slightly for full year 2015 due to currency issues. Overall, we estimate gross revenues of around $13 billion for Las Vegas Sands in 2015, with EPS of $2.73, which is higher than the market consensus of $2.61, compiled by Thomson Reuters. We currently have a $56 price estimate for Las Vegas Sands, which we will update after the third quarter earnings announcement.

 


Notes:
  1. Las Vegas Sands’ Press Release [↩]
  2. CASINO SHARES SURGE ON STRONGER-THAN-EXPECTED REVENUE, Macau Daily Times, Oct 14, 2015 [↩]
  3. Chinese Stocks in Hong Kong Rise on Stimulus, U.S. Rate Outlook, Bloomberg, Oct 5, 2015 [↩]