Las Vegas Sands Earnings: Sands China Underperformed In Macau

by Trefis Team
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Las Vegas Sands (NYSE: LVS) reported its Q3 earnings on Wednesday, October 25. The company’s net revenues and income were up by nearly 85 and 13%, respectively. The earnings were driven by the sustained growth momentum of Marina Bay Sands and Parisian Macau, which were partially offset by the decline in Las Vegas and other Macau casino operations. In Macau, the company’s EBITDA grew only 4% when the industry GGR in the region grew by more than 20% in the quarter. Except for the Parisian Macau, all other casino revenues declined in the quarter due to intensified competition in the region from new casino openings. LVS’s Las Vegas strip EBITDA declined by nearly 12% this quarter, but we believe that that was likely a transitory phenomenon, and the Las Vegas operations may bounce back starting in the fourth quarter of this year.

Marina Bay Sands Sustains Growth Momentum

Las Vegas Sands’ Singapore performance is the biggest positive that can be taken out of its Q3 results. Marina Bay Sands’ adjusted property EBITDA increased by nearly 13% this quarter, and was driven by strength in VIP gaming and retail mall sales in the region. This was the second consecutive quarter where Las Vegas Sands’ Singapore resorts showed positive growth after declining for about a year. While the strength in VIP gaming and retail malls gave a boost to Marina Bay Sands’ earnings this quarter, the operational efficiency of the Singapore operations resulted in a nearly 400 bps increase in EBITDA margins. We expect Marina Bay Sands to continue to improve, at least for the next couple of quarters, as the Asian gaming industry continues to recover, which is likely to result in more VIP gamblers in the region.

Sands China May Continue To Underperform In The Short Term

The gross gaming revenues (GGR) of Macau’s casino industry increased nearly 22% in the quarter, driven by new openings in the region and the re-emergence of VIP gamblers in the region. VIP gaming continued to improve in the region starting in Q3’16 after the corruption crackdown movement of the Chinese government began to slow down. Las Vegas Sands, on the other hand, concentrated more on the mass market gambling side in the last couple of years. The increase in VIP gambling in the region in the last few quarters boosted Macau’s GGR, but Las Vegas Sands underperformed in the region due to its focus on mass market gaming. Sands China’s EBITDA grew only 4% compared to 22% industry growth. The underperformance of Sands China can also be attributed to the intensified competition in the region after the opening of new casinos by Wynn and Galaxy. We believe that the situation for Las Vegas Sands will become even more challenging as MGM is scheduled to open its new casino in the region in the fourth quarter of 2017, and starting next quarter Parisian Macau growth will be completely organic.

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

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