How Much Will Macau Contribute To Las Vegas Sands’ Top Line Growth?

The anti-corruption crackdown by the Chinese government had adverse effects on Las Vegas Sands’ (NASDAQ: LVS) revenue during 2015, as the company’s revenue plunged to just over $12 billion (down nearly $3 billion year-on-year) and the negative impact of changes in economic factors slightly dampened its 2016 revenue (down 2% year-on-year). Since then, LVS has seen its revenue grow consistently. The company’s 2017 revenue jumped to $14.4 billion (up nearly $1.5 billion year-on-year), largely as a result of robust performance in Macau, and Singapore. Macau now contributes to nearly 53% of the company’s overall revenue.

Based on recent market trends and the near-term outlook provided by the company’s management, we forecast LVS to report 6-7% revenue growth in the next two years, from $14.4 billion in FY 2018 to just over $16 billion in FY 2020. Of the estimated $1.7 billion added to net revenues, we estimate that Macau will contribute around $1.1 billion, or about 63% of the incremental revenues. We arrive at this estimate from LVS’s key growth metrics such as VIP table games, mass market table games, slot games, and hotel revenue. We have summarized our expectations on our interactive dashboard platform. If you disagree with our forecasts, you can change the key drivers for Macau to gauge how changes will impact its expected revenue.

Estimates for Key Growth Drivers

Macau contributes nearly 53% of the company’s overall revenue and has seen its revenue grow by just over 6% annually between 2015-2017. This was largely due to the adverse effects of the anti-corruption crackdown during 2015, and the negative impact of changes in economic factors in 2016. The company’s 2017 revenue improved slightly as a result of witnessing strong traffic and higher occupancy rates, driven by the full operational year of The Parisian Macau. The suite additions at The Parisian Macau, renovation of VIP gaming areas at the Venetian and Plaza Macau, and the renovation and rebranding of Sands Cotai – which is expected to be completed by 2020 – should put some near term pressure on earnings. However, the various new infrastructure developments in Macau should boost the mass market business for the company. Further, the company expects its diversified offerings in the Cotai strip to continue to provide solid growth.

We expect Macau to be the driving force for LVS in 2018, since the gross gaming revenues (GGR) in the region grew consistently for the 22nd straight month in May 2018. While the VIP market continues to see robust growth since the anti-corruption cooldown, a noteworthy trend in Q1’18 has been strong growth in the mass market segment, growing at just over 20%. This growth can be attributed to increased visitation by casual gamblers due to the improved infrastructure development – High-speed rail link and the Hong Kong-Zhuhai-Macau Bridge, both connecting Macau to Hong Kong. These tailwinds in the Macau casino market, coupled with its positioning in the VIP market, strong growth in the mass market, and an improving Chinese economy, should provide for another year of robust growth for LVS. Further, we expect its diversified offerings, coupled with new offerings in Macau, should provide long-term growth opportunities.

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