LVS Businesses To Revive On The Back Of Momentum In Macau

Las Vegas Sands (NYSE: LVS) will report its Q4’16 earnings on Wednesday, January 25th and we expect mid-‘teens growth in its revenues due to improved visitation in Macau and the continued strong performance of LVS in Las Vegas. The company’s newly opened casino on the Cotai Strip is also expected to have boosted its revenues and EBITDA in the fourth quarter. However, the Macau government’s decision to cap ATM withdrawals in December may have partially offset this growth, but the overall impact on LVS revenues was likely modest. LVS has performed well in Las Vegas this year despite some fluctuation in region’s GGR (i.e., Gross Gaming Revenue), and we expect this trend to continue. As far as Singapore is concerned, there are no clear signals of recovery and the region’s performance is likely to remain soft.

Sands China Businesses To Shine Again As Macau Market Gains Momentum

LVS has invested heavily in Macau as it derives about 58% of its overall revenues from the region. Macau casino market saw more than 34% decline in its Gross Gaming Revenues (GGR) in 2015 due to the corruption crackdown of the Chinese government, which reduced the number of VIP gamblers. However, in the last few months, the region’s GGR has increased. In Q4’16, the figure jumped nearly 13%, shrinking the full year 2016 decline to just 3.3% compared to 34.3% decline in 2015. It should be noted that the increased GGR was also partially contributed by the new casinos of LVS and WYNN. We now expect double-digit revenue growth for LVS in Q4’16 for the first time in eight quarters due to impressive visitation in its new casino ‘The Parisian’ on the Cotai Strip.

Parisian Macau outperformed Wynn Palace in the initial run and became the second most visited casino of Sands China after The Venetian Macau in 2016. We expect this to reduce LVS’ revenue decline for the year. We also expect a significant increase in company’s EBITDA margin due to increased visitation in Macau and a higher occupancy rate of LVS hotels due to the inter-relationships of all of its Macau casinos.

ATM Withdrawal Limit May Partially Offset Growth

Macau government recently slashed in half the amount of cash which China Union Pay card holders can withdraw from ATM machines in the city. As much as 50% 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. There are individuals who specialize in utilizing hundreds of ATM cards on any given day to withdraw cash and provide liquidity to junket agents and some Premium Mass players. As a result, this should have less of an impact base on mass and lower-end premium mass customers, but may hurt high-end premium mass visitation in LVS casinos. This move is a part of China’s efforts to tighten capital controls as depreciation pressure builds on its currency. 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 but, players are likely to shift to other ways of bringing cash for gambling. Overall, we believe that this regulation will partially offset revenue growth of Sands China, but the overall impact will be insignificant as the move was announced in the last month of 2016.

For model and valuation, please refer to our complete analysis of Las Vegas Sands.

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