What 2017 Holds For LVS: Macau Casino Industry and Japan Casino Legalization Brings Optimism Among LVS Investors

by Trefis Team
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Las Vegas Sands (NYSE: LVS) businesses are expected to grow in 2017, driven by an improvement in Macau casino market, strength in Las Vegas gaming, and its new casino (the Parisian Macao) on the Cotai Strip, which just opened in Q3’16. In its first 18 days of operation, The Parisian became the second most visited casino in Macau in 2017 and contributed more than $1 million per day to LVS’ EBITDA. We expect this momentum to continue in 2017, even wirh MGM’s new casino on the Cotai Strip as well, which is scheduled to open in second half of 2017. We believe that double-digit growth in Macau’s GGR (Gross Gaming Revenue) will offset any churn caused due to the MGM Cotai. On the other hand, legalization of casinos in Japan brings in optimism to LVS investors, as the company long announced its plans to invest as much as $10 billion in Japan. If LVS wins the contract to build a casino in Japan, its valuation will go up significantly, because Japan is the world’s third largest economy in the world and nearly 5% of the adult population are committed to gambling.

 

Improvement In Macau Likely To Fuel Growth For LVS

LVS revenues increased in Q3’16 following seven consecutive quarters in which revenues declined year to year. We expect LVS revenues will continue to grow in 2017, driven by a revival in the  Macau gaming market, which contributes more than 50% of LVS’s total revenues. Increased visitation in the region in the later half of 2016 led to double-digit GGR growth in November 2016. We believe that LVS’s revenues from entertainment, retailing and other activities in the region will also go up due to its new casino in Cotai strip. The Las Vegas gaming industry has been the only major casino market whose growth remained stable in 2016 and we expect this to grow once again in 2017, driven by increased convention attendance and increases in Chinese visitors to the region. With no new casinos coming in the Vegas area till 2019, LVS will benefit from increased visitation in the region.

The company’s new casino on the Cotai Strip started its operation in Q3’16 and in the initial run, outperformed Wynn Resort’s Wynn Palace in terms of visitors. For the first 18 days of operations, adjusted property EBITDA 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. We believe that LVS’s EBITDA will continue its growth in 2017 as Parisian Macau is likely to overtake all the other casinos in Cotai strip in terms of visitations in the coming quarters, due to its interconnections with other LVS resorts and non-gambling attractions.

 

Japan Casino Contract Win May Swing Valuation For LVS

Almost all the big casino companies have been keeping an eye on Japanese government’s pending decision to legalize casino gambling in the country. Japan finally cleared the bill to legalize casinos on December 14th, 2016. LVS and MGM have also announced a decision to invest about $10 billion each if Japan chooses to legalize casinos. The region is the next bright spot for the big casino companies. Also, as the Japanese market is not at all penetrated, we believe that return on investment for the companies are likely to be high enough in the long term to justify these huge investments. With the Tokyo Olympics scheduled for 2020, the optimism for higher ROI projects has doubled among the casino companies. If LVS wins the contract with Japan government to build casinos in 2017, LVS stock price has about 15% upside potential.

 

MGM Cotai Opening And Declining Singapore Revenues Threaten LVS Growth

MGM is scheduled to open its new casino in Cotai strip in the 1st half of 2017. This presents a threat to LVS and Wynn as the success of MGM Cotai may result in customer churn for both LVS and WYNN. MGM will be in a position to offer better discounts to customers as they have improved their operational efficiency in Macau and increased visitation will make their position stronger in the region. Singapore revenues are also a cause of concern for LVS has the company’s revenues have declined in the recent past. There haven’t been any clear signals of improvement in the region’s casino market and thus, investors need to be watchful of Singapore casino market in 2017.

 

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of Las Vegas Sands

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