LVS Q4’16 Earnings: Increasing Competition In Macau A Cause Of Worry For LVS?

by Trefis Team
Las Vegas Sands
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Las Vegas Sands (NYSE: LVS) reported its Q4’16 earnings on 25th January and its revenues missed the consensus estimates by nearly about $50 million. LVS gained from increased visitation in Macau but it failed to realize the market’s full potential as its growth was below industry GGR, despite its newly opened casino in the region. New casinos of other operators such as Wynn, Galaxy and MGM will further increase competition in the coming quarters and LVS growth in the region can be affected due to this. The interconnectedness of all its resorts in Macau, added with the most number of hotel rooms and nongambling attractions, may still give a tough competition to its peers. However, as 83% of LVS revenues came from its Asia operations (Macau and Singapore) and that adds to the risk of the company given the fact that Singapore market has been flat to down for the past couple of years.


Macau Mass Market Gaming Revived But LVS Missed Consensus Estimates

LVS overall revenues increased nearly 12% but its EBITDA recorded growth of only 6% for the quarter. Sands China surged by more than 11% in Q4’16 primarily due to the opening of The Parisian and continued growth of mass market gaming in the region. However, Macau GGR grew nearly 12% in the last quarter of 2016 and this indicates that LVS failed to realize the full potential of the market despite the newly opened casino Parisian. Wynn Palace opening has increased the competition in the region and that might lower Sands’ revenue from the region. The company’s Singapore operations, on the other hand, grew due to increase in mass gaming and non-gaming operations in Q4’16 and was able to avert the revenue decline from the region for the full year 2016. Company’s U.S. operations were also flat this quarter much to the disappointment of investors as Las Vegas casino market has been growing for the past few quarters.


Wynn Palace And MGM Cotai Could Dampen LVS Growth

At present, a survey done by LVS said that The Parisian is the second most visited casino in Macau after the Venetian. However, we believe that the popularity of Parisian may not remain this high in the coming quarters due to the opening of new casinos in the region with many non-gambling attractions. Although the interconnectedness of all the Sands China properties is a very strong competitive advantage over LVS peers, the opening of new casinos of Wynn, Galaxy and MGM will certainly increase the competition in Macau. Even if the visitations continue to grow in 2017, the increased competition in the region may dampen LVS revenue growth in the coming quarters. As the majority of LVS revenues are generated in Macau, we believe that weakening growth from the region could adversely affect LVS valuation in 2017. However, LVS may still surprise investors as it has about 13,000 interconnected hotel rooms in Macau along with nongambling attractions in Parisian, and if visitations in the region increase further in coming quarters, LVS may beat industry growth.

We are currently reviewing our valuation model for Las Vegas Sands in the light of the recent earnings and will have an update soon.


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

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