The Expansion Of The Sands Bethlehem Is Not Significant For Las Vegas Sands
After a strong Q3 2016, following the opening of its new casino The Parisian in Macau, Las Vegas Sands (NYSE: LVS) announced that Sands Bethlehem, its casino and entertainment destination in Pennsylvania, will undergo a $90 million expansion. This expansion will add a new gaming floor with additional restaurant space, increasing the capacity of this casino and consequently generating higher revenues. However, this expansion is unlikely to make a significant impact on Las Vegas Sands’ valuation. According to our estimates, Pennsylvania Gaming & Hotel accounts for only 3% of the company’s valuation, with Macau being its most critical division. In our estimation it accounts for more than 50% of the company’s valuation. Revenues from Pennsylvania account for less than 10% of the company’s total revenues with Macau accounting for more than 70% of its revenues. Expansion of Bethlehem is likely to increase slot handles in the region and consequently revenues, but is unlikely to impact the company’s valuation significantly.
No Significant Impact On Price Estimate If Slot Handle Grows Rapidly
We expect the Pennsylvania slot handle to increase gradually from $4.5 billion in 2016 to nearly $ 6.0 billion by the end of our forecast period, with the stabilization of the world economy leading to an increase in consumer spending.
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With the expansion, if this spending increases significantly and reaches nearly $ 8 billion by the end of our forecast period, there will be a very little impact on our price estimate. Currently this casino has around 3,000 slot machines and 237 game tables, attracting 9 million people a year. The planned expansion provides for 380 more slot machines and 81 more tables. The casino currently turns away 50 to 100 people every weekend due to lack of room and the expansion can address this issue. However, from a broader perspective this casino is not very significant for Las Vegas Sands and the proposed expansion is not very big.
Macau is the key value driver for Las Vegas Sands and the recently opened casino and hotel The Parisian on the Cotai strip is likely to drive growth for the company in the long term. For the first 18 days of operations, adjusted property EBITDA (earnings before interest tax depreciation and amortization) for The Parisian averaged $1.1 million per day, and daily visitations exceeded 40,000, making it the second most visited casino after The Venetian. The company’s other resort in the region Sands China also performed extraordinarily well in Q3 2016 with a 15.3% increase in adjusted property EBITDA. As the region recovers following a Government crackdown on the back of initiatives to promote corruption free gambling, Macau will be the key growth driver for Las Vegas Sands. Sands Bethlehem is likely to see higher revenues after the expansion, but this will not impact the company’s valuation significantly.
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