Las Vegas Sands’ business shrinks in Q2’16 but there is a silver lining

Las Vegas Sands’ (NYSE: LVS) reported its Q2’16 earnings on July 26th and the results came in below analyst estimates. However, the company performed better than the casino industry in Macau, registering a slight increase in its Macau revenues in June as the region’s overall gross gaming revenues declined by more than 8% . This is an encouraging development, and coupled with the expected opening of the Parisian on Cotai strip, provides a silver lining for the company.

Las Vegas Sands’ net sales and adjusted EPS for Q2’16 were respectively down 9.3% and 13.3%  year over year, which was in line with Macau’s gross gaming revenues (down by about 9%). The company’s overall EBITDA margin increased by 120 basis points, the first instance of significant growth in the last 5 quarters. While we believe that the Macau market has not yet stabilized, Las Vegas Sands may see some growth from its Macau operations starting Q3’2016, primarily driven by its announced casino in Cotai strip.

Losses in Macau were partially offset by Las Vegas and Bethlehem operations

Company’s Macau operations EBITDA declined by more than 14% year on year in Q22016 but overall EBITDA fell only 6.1% owing to its solid performance in Las Vegas and Bethlehem. Despite stronger US dollar, Marina Bay Sands’ property EBITDA declined by just 1.7% in Q2’16, as its hotels and retail malls continued to outperform the Singapore markets. We believe that Singapore will remain flat at least for the next couple of quarters as the Sands hasn’t yet received a nod from Singapore government for its new project. However, Las Vegas EBITDA increased by 33.1% despite the decline in Q2’16, primarily because of an 8.8% increase in the hotel revenues. Bethlehem EBITDA increased by about 10.5% year over year and was the only market where the company saw an increase in both gaming and hotel revenues. We expect these two markets to continue to perform better in the near term

Marina Bay Sands’ rolling win percentage increased by about 0.7% and room revenues increased by 0.6% in Q2 2016. However, total mass win per day for Marina Bay Sands’ declined by 4.1% year over year on constant currency basis. We don’t expect any significant growth in the company’s Singapore operations in the near term, primarily due to currency translation issues. We currently estimate Singapore revenues (excluding food, convention and other) to decline slightly to reach around $2.7 billion in 2016, representing around 32% of the company-wide revenues.

Las Vegas Sands may outperform Macau in the next few quarters but stabilization in Macau’s GGR is likely to take another few quarters

Las Vegas Sands’ market share in China has grown to 37% in 2016 from about 28% in 2012. The company’s casino revenues continued to decline in Q2 but its mall and hotels revenue grew by about 3% sequentially. Las Vegas Sands reported that it experienced a year-on-year increases in its gaming volumes and revenues in June 2016 from its Macau operations. This is an encouraging sign for the company as Macau’s gaming industry declined by more than 8% in June 2016.

The Parisian Macao is expected to open in September with a capacity of 450 table games and about 2500 slots & ETGs. We currently estimate Las Vegas Sands’ Macau gross revenues of over $6.5 billion and EBITDA of around $2 billion in 2016, representing about 48% of the company-wide EBITDA.

For more information, please refer to our complete analysis for Las Vegas Sands

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