Here’s How Las Vegas Sands Can Be Impacted By China ATM Withdrawal Caps

Recently, Macau regulators slashed in half the amount of cash which China Union Pay card holders can withdraw from ATM machines in the city. Las Vegas Sands’ (NYSE: LVS), which derives nearly 50% of its revenues from Macau gaming and hotels, is likely to be impacted by this move. Nearly half of the Chinese visitors to Macau use Union Pay ATM withdrawals for their gaming requirements and slashing withdrawal limits will create a liquidity crunch in the short term. While this should not impact mass gamers, premium players might have a short term impact. This move is a part of China’s efforts to tighten capital controls as depreciation pressure builds on its currency. In the past few months Macau’s gaming industry started showing signs of recovery as casinos invested in new properties. However, fears of tighter regulations can impact this growth in the short term. We believe the ATM withdrawal limit can impact revenues in the short term. However, players are likely to shift to other ways of bringing cash for gambling. In the long term, this can be a positive development as regulators look at cleaning up the casino industry in the region.

 10% Downside To Our Price Estimate If Growth In Macau Non-Rolling Chip Drop Slows Down

According to our estimates, Macau Hotels and Gaming account for nearly 50% of Las Vegas Sands’ valuation and Macau Non Rolling Chip Drop is a key driver of this division. We expect this driver to increase significantly from $16.6 billion in 2016 to nearly $50 billion by the end of our forecast period primarily due to the enhanced capacity in Cotai as well as growth in Mainland China visitors.

However, a slower rate of growth in this number can lead to a downside in our price estimate. If the non-rolling chip drop increases at a slower pace and reaches just $40 billion by the end of our forecast period, there can be a 10% downside to our price estimate. Tighter controls in Macau in terms of ATM withdrawal limits  can impact revenues in the short term. However, this should not impact LVS’s valuation significantly. For instance if the Macau non-rolling chip drop remains constant in the next two years, but starts growing after that and reaches our estimate of $50 billion by the end of our forecast period, there will not be a significant downside to our price estimate.

China is looking to control potential capital outflow abuses through Macau by reducing the ATM withdrawal limits. However, as the region transforms from a VIP gambling region to a mass vacation location, the controls in place should not impact the players in the region significantly in the long term. After the opening of its Parisian Macau Resort, LVS now controls nearly half of the total rooms that gambling companies operate in Macau. This ensures that the company is well poised to take advantage of the transformation of this region.  We believe that, while the ATM caps should impact some premium gamblers and affect the revenues of LVS in the short term, this move should not have a very significant long term impact on the company’s valuation.

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

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