Las Vegas Sands (LVS, Financial) is the largest casino chain operator and has been an exemplary performer. Its recently reported results once again proved its worth. The numbers were ahead of the Street’s estimates, despite a slowdown in Macau, the only place in China where casinos are legal. The bright numbers resulted in a sharp increase in its share price too.
Reasons for merriment, despite the weaknesses
Revenue for the quarter dropped 6.6% to $3.42 billion, over last year. The top line was affected by the weakening of the Chinese economy, which in turn affected its business in Macau. Also, a smoking ban in Macau in the VIP table rooms resulted in lower revenue. Las Vegas Sands has four casinos in Macau and total betting revenue in Macau fell 2.6% to $44 billion, over last year. In fact, revenue from the China business declined 16% to $2.12 billion. Further, the Las Vegas region’s performance was also not up to the mark with a 6% decrease in revenue, clocking in at $363 million.
However, the company’s Marina Bay Sands in Singapore registered great results. Total revenue from Singapore increased 27% to $839 million. Also, Casino revenue from the region was up 34% to $674 million, over last year. Further, earnings doubled during the quarter, driven by the surge in gambling and growth in mass market gambling. But, growth in the current quarter is difficult since tourist arrivals have declined by 3.4% in November 2014, which will affect its results.
Another good performer was the company’s casino resort in Bethlehem, which too registered good numbers along with a higher occupancy rate of 88% from 74% in the previous year.
Although the top line was not up to the mark, the casino resort operator registered a blockbuster bottom line. Earnings for the quarter rose 25% to $0.92 per share, over last year. This was higher than the analysts’ estimate of $0.80 per share.
Analyzing further
The VIP gaming has decreased because of the various bans made in Macau. Hence, VIP gaming accounted for 16% of Macau profits only, whereas mass market made 52% of the total earnings.
Therefore, due to the decline in Macau revenue, the company has shifted its focus to premium mass segment. Thus, premium mass tables are increased to 323 as compared to 261 in the last year. This should help in increasing revenue from premium mass tables. Las Vegas Sands should also benefit from its properties in the Cotai region, which has been growing rapidly.
Property update
The newest and the largest property of Las Vegas Sands in Macau, called Parisian, was planned to be opened this year. But because of a halt in construction for some time in the last year, the resort will not open until 2016.
Key takeaway
Despite the existing problems, Macau is expected to do well in the long run, especially given the opening of a new resort in the region. Also, visitation from Mainland China to Macau increased 14% to 21 million in 2014, which shows that tourists continue to travel to Macau in order to indulge in gambling. Furthermore, the company increased its dividends by 30% to $0.65 per share. These factors make me go positive on this company. Investors should continue to bet on this casino operator.
