Can Macau Be A Long Term Growth Driver For Las Vegas Sands?

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According to our estimates,  Macau Gaming and Hotels account for nearly 50% of Las Vegas Sands’ (NYSE: LVS) valuation and the revenues of this segment are nearly 4 times higher than the Las Vegas Strip. As Macau is the only place in China where gambling is legal, there is a huge demand for gambling in this region leading to high revenues. In mid-September Las Vegas Sands finally opened its long awaited Parisian Macau Resort in Macau’s Cotai Strip. This is the company’s fifth property in the region and it now controls nearly half of the total rooms that gambling companies operate in Macau. The timing is felicitous as the region is at last recovering  from a ban on V.I.P. travel imposed by China in 2014 as part of its anti-graft drive.  As a result, Macau has  transitioned from V.I.P.-focused gambling to mass market gambling, with more focus on volumes rather than high value transactions.  Given its huge presence in the region,  Las Vegas Sands will gain from this transition. Experts believe that Macau gaming revenue will start rebounding this year, driven by new projects including the Parisian resort.  We believe Las Vegas Sands is well poised to gain from this rebound and Macau could be a critical growth driver for the company in the long term.

Macau Transitioning Into A Mass Market Gambling Environment

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As the Chinese government looks to curb illegal gambling and rampant corruption on the Macau Island it is working towards transitioning the region from a gambling destination for the wealthy to a mass vacation location. This has prompted several operators to open new resorts on the island, including a $ 4 billion Wynn Palace Resort.  We believe companies with higher number of rooms will benefit most from this transition as the number of tourists to the island increases, driven by heavy government initiatives. Las Vegas Sands, with five properties in the region, will be a key beneficiary. We expect LVS’ Macau Non-Rolling Chip Drop to increase significantly from around $15 billion in 2016 to nearly $ 45 billion by the end of our forecast period.

We believe mass market table games volume and LVS’ new resort in Macau’s Cotai strip will contribute significantly to this growth. In June 2016, LVS’ Macau properties experienced a year on year increase in both mass gaming volumes and revenue, making it the first month of year on year growth since September 2014. This can be considered as the first sign of stabilization in Macau, which LVS is well poised to capture.  LVS is positioning its new Parisian resort to cater well to both the current Macao market conditions and the long term trends in Chinese outbound tourism. It will complement the company’s all-suite hotel, the Venetian Macao, which offers affordable hotel accommodation that features the aspirational appeal of its public spaces, attractions and amenities. As the region stabilizes and grows, it will transition to a destination that attracts more numerous affluent tourists, rather than rich high rollers eager to gamble away ill-gotten gains.   Aligning well with economic and social change in the region, Las Vegas Sands  stands to benefit from its huge investment in Macau over the long term.

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

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