Las Vegas Sands Q4 Earnings Bolstered By Cost Efficiencies

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Las Vegas Sands (NYSE:LVS) recently reported its Q4 2015 earnings, which came in line with the street estimates amid continued cost efficiencies. The company outperformed the overall Macau market, which saw a 27% drop in gross gaming revenues during the fourth quarter, as VIP gaming players continued to stay away from the world’s largest gambling hub amid government’s anti-graft measures. Las Vegas Sands’ Macau EBITDA was down only 19% in Q4, which is remarkable given the challenging environment in Macau and far better than 30%+ decline seen for Wynn Resorts during the same period. Las Vegas Sands’ Singapore property also did well on a constant currency basis led by better hold for mass-market gaming.

Overall, the Q4 results were good given the challenging environment in Macau. The company stated that it will likely open its new casino resort in Cotai by mid September this year. Macau’s Q4 gaming numbers reflect sequential improvement over the previous quarter, which is a positive sign for the industry. In fact, Las Vegas Sands’ VIP gaming volume was up 5% sequentially as compared to the 2% growth for the overall market. [1] While the situation in Macau may remain fragile in the near term, we continue to remain bullish for the long term. This can be attributed to growing reliance on mass-market gaming, which will be the future growth driver for the casinos in Macau, in our view. A buoyant growth in China’s middle class will boost visitation from Mainland China to Macau while better infrastructure, enhanced capacity and supportive measures from Beijing will aid the overall market growth. We currently have a $59 price estimate for Las Vegas Sands, which we will soon update to incorporate the recent quarter earnings.

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Cost Efficiencies Boosts Macau EBITDA While Currency Issues Weigh On Singapore Operations

A decline in Macau gaming led to 22% lower revenues and 18.5% drop in EBITDA for Sands China during the quarter. However, the reported Macau EBITDA margins improved 130 basis points to 34.7% due to cost efficiencies. [2] The Macau market has been on a decline for 19 straight months led by the government’s anti-graft measures, followed by a weakening economy and this has taken a nasty toll on casino operators in the region. On the brighter side, the revenues have grown sequentially in Q4 and the comparison will be favorable in 2016 with already lower figures in the previous year.

Las Vegas Sands will benefit from its diversified portfolio of properties in Macau and it is further developing – The Parisian – a new casino resort in Cotai, primarily targeting the mass-market segment. The new property will further enhance Sands’ gaming tables capacity in the region. The company’s key property in Macau is The Venetian Macao, which was able to generate more than $1 billion in annual EBITDA despite the challenging environment in 2015. In fact, Las Vegas Sands’ share of EBITDA in Macau was 37% for the first nine months of 2015, as compared to 34% in the prior year period, in a market operated by six players. [1] This can be attributed to the company’s MICE-based integrated casino resorts business model. MICE refers to – Meetings, Incentives, Conferences, and Events – and it is a type of tourism in which large groups, usually planned well in advance, are brought together for a particular purpose/event. Las Vegas Sands has been focused on growing its non-gaming operations, such as MICE and retail among others, which has provided it some shelter amid continued headwinds in Macau gaming. We currently estimate Las Vegas Sands’ Macau gross revenues of over $7 billion and EBITDA of around $2.6 billion in 2016, representing 50% of the company-wide EBITDA.

Looking at Las Vegas Sands’ Singapore operations, casino revenues were down 16% to $704 million in the fourth quarter. While the rolling chip volume was stable, non-rolling chip volume was down 11%. Overall, Singapore EBITDA was down 33%, primarily reflecting the currency issues and a tough comparison. On a constant currency basis and adjusting for the property tax refund that the company received in the prior year quarter, Singapore hold-normalized EBITDA actually increased 12%. We don’t expect any significant growth in the company’s Singapore operations in the near term primarily due to currency issues. We currently estimate Singapore revenues (excluding food, convention and others) to remain stable at around $3 billion and EBITDA of $1.5 billion in 2016, representing around 30% of the company-wide EBITDA.

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Notes:
  1. Las Vegas Sands’ (LVS) CEO Sheldon Adelson on Q4 2015 Results – Earnings Call Transcript, Seeking Alpha, Jan 27, 2016 [] []
  2. Las Vegas Sands’ SEC Filings []