Las Vegas Sands (NYSE:LVS) recently released its Q2 results with approximately 35% decline in net income to $241 million compared to the same period last year. The slow down in growth in its Asian operations is cited as the major reason behind this dismal performance. The results from its Singapore operations and Sands Cotai Central, its newly launched resort in Macau, were weaker than anticipated.
We have revised our price estimate for Las Vegas Sands from $64 to $50, implying a premium to the current market price. We have updated LVS’ net debt position, according to the latest balance sheet numbers. We have also adjusted our estimates for Macau and Singapore region in accordance with LVS’ year-to-date performance in these geographies.
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Asian Operations Hit By A Slow Down
The growth in Asian operations is crucial for the future growth prospects of LVS, which presently operates four resorts in Macau and one resort in Singapore. According to our estimates, LVS’ Asian operations contribute approximately 75% to its current stock valuation. Lower than expected win percentage in Macau and Singapore and increased provisions for accounts receivable in Singapore have affected LVS’ performance numbers.
The recent reports of a slowdown in the Chinese economy and a consequent decline in spending and visitation have started to impact the performance of the Macau gaming industry. For instance, in May, it witnessed a mere 7.3% y-o-y increase, its slowest increase in the past three years.  In a recent development, Fitch Ratings revised its growth forecast for Macau to 10-12% from 15% earlier. 
In the past, increasing disposable income in China’s growing middle class population and a growing number of high net worth individuals have been the key drivers behind VIP growth and mass market turnover in Macau.Notes:
- See: Casino Stocks Stumble as Macau Gaming Revenues in May See Slowest Rate of Growth in Almost 3 Years, Market Watch [↩]
- See: Casino’s income forecast cut again, China Daily [↩]