The professional approach of Las Vegas Sands Corporation has won the leadership of the market by acquiring the highest market share in the hotel sector and the gaming industry. With a clear vision supported by highly organized marketing strategies, the company is in the process of expanding its business path by searching new opportunities. The Las Vegas Sands diversified its business to Macau located in China, which is the largest gaming market in the world. Macau is the only legitimate market for the gaming industry in China. The growth potential of the gaming industry is high in Macau. The revenue generated from the gaming industry was increased by 42% in 2011 compared to the year 2010. It is expected that this growth will continue with the development of infrastructure. Further, Macau is a strategic location that has easy access through road, air or sea.
The next targeted market, Singapore, is also well known as a vibrant tourist destination. Increase in tourist arrivals will continuously contribute to the increase of revenues generated. Singapore, with well-developed infrastructure facilities, has welcomed over 13 million tourists in the year 2011, which is a 14% increase compared to the last year. This potential growth has offered Las Vegas Sands Corporation an immense opportunity to cater the tourism market with high-end hotel facilities and gaming entertainments.
The net income of Las Vegas Sands Corporation has reached over $1.5 billion in the year 2011. It is the largest net income recorded so far. Compared to the year 2010, it is around 160% increase (2.5 fold increase) of the net income in 2011. Net revenue accounted for $9.4 billion in 2011, a 1.4 fold increase, compared to the $6.8 billion in 2010. Total assets of the company are $22 billion, while total capital expenditure is $1.5 billion. The current ratio, which shows the ability of the company to bear the liabilities stands at 2.2 which is within the acceptable range. I believe that the company is viable. The net income as a percentage of capital employed (Return on Capital Expenditure, ROCE) stands at 8, which is a significant amount showing an adequate return compared to the capital employed. The basic income per share is $1.74 in 2011, whereas it was $0.61 in 2010.
The company is facing tough challenges from competitors in each business segment. In Macau, the competition is high, as the Macau government has granted concessions for six companies including Las Vegas Sands Corporation. Wynn Resorts (WYNN), Altira, City of Dreams, Galaxy, and MGM Grand (MGM) are the main competitors that engage in the same business in Macau. These companies are operating casinos and hotels worldwide, making a challenging competition against Las Vegas Sands Corporation. Resort World Sentosa is the only competitor in Singapore, which is a family tourist destination that has casinos, hotels, theme parks, exhibition facilities etc.
The major competitor of Las Vegas Sands resorts in Macau, the Wynn Resorts, is strengthening its capacity over the time. The net revenue of Wynn resorts is $3.8 billion in 2011 with a profit of $0.8 billion. The total assets amount to $2.2 billion of which current assets is $0.8 billion. However, the current ratio stands at 0.7, which is not within my safety range.
Las Vegas Sands Corporation is an integrated resort company which is famous for high-end accommodation, convention center facilities and gaming entertainments. It has already expanded its operations out of the United States to Asian countries, such as Macau-China and Singapore. The diversification strategy has worked well, and the company is generating more revenues from Macau and Singapore that U.S. Also, the company is in the process of finding new opportunities in UK, Europe and other Asian countries.
I believe that this company is financially stable and has a great growth potential. The growth proved by the rise in income and better positive financial ratios. After losing almost 50% of its market cap, Las Vegas looks like a cheap deal. The company is performing well and facing the challenges of powerful competitors like Wynn resorts, Alitra, City of Dreams, Resort World Sentosa etc. However, the competitors are still far behind with the performance of Sands Corporation. It is a roller-coaster stock, but looks fundamentally cheap.
About the author:
Investment philosophy is to first determine the maximum loss, and invest accordingly. Like many value investors, we prefer to invest in stocks with the highest dividend yields, and highest EPS growth potentials. Telecommunication and energy stocks in emerging markets are among the favorites.
Based on extensive quantitative analysis, in any market, going short is risky. Statistical analysis shows that technical indicators work only if they are strong enough to convince the majority of the investors. Do not buy a stock at the top, do not sell a stock at the dip.