Las Vegas Sands: Macao Is Still The Growth Driver

| About: Las Vegas (LVS)

Las Vegas Sands Corp. (NYSE:LVS) develops integrated resorts worldwide and has the best record in the casino industry of opening successful integrated resorts in a variety of geographic regions, including Singapore and China. Despite the missed earnings estimates, LVS closed at $55.25 with 7.16% increase on January 31, 2013 with a record net revenue of $3.08B for Q4, 2012, an increase of 20.9% compared to $2.54B in Q4, 2011.

Bullish Factors

Strong revenue and cash flow growth in Macao. Total net revenues for Sands China Ltd. Increased 48.1% to $1.97B in Q4, 2012, compared to $1.33B in Q4, 2011. The Venetian Macao delivered a record adjusted property EBITDA of $333.1M, an increase of 17.6% compared to Q4, 2011. The Four Seasons Hotel Macao and Plaza Casino generated adjusted property EBITDA of $89.7 million in Q4, 2012, an increase of 42.4% compared to the Q4, 2011. Net revenues and adjusted property EBITDA for Q4, 2012 were $490.7 million (Sands Cotai Central First Phase) and $108.0 million (Sands Cotai Central Second Phase), respectively, resulting in an EBITDA margin of 22.0%. Middle-class gamblers are refueling growth in Macau, the only place in China where gambling is legal. 11 million visitors were at Cotai strip properties in the last quarter.

Increasing gross revenue from retail mall operations. Gross revenue from tenants in the company's retail malls on Macao's Cotai Strip (The Venetian Macao, Four Seasons Macao and Sands Cotai Central) and Marina Bay Sands in Singapore reached $128.1 M for Q4, 2012, an increase of 21.0% compared to Q4, 2011.

Sands Bethlehem, for sale? Net revenue for Sands Bethlehem in Pennsylvania was $117.8 million (vs. $105M in 2011) and adjusted property EBITDA reached $27.5 million (vs. $22.5M in 2011) for the Q4, 2012. The company is seeking a buyer for its Bethlehem according casino people with knowledge of the situation. As stated by Sheldon Adelson, Chairman & CEO of LVS, "We are of the opinion that a lot of the U.S. markets have been oversaturated or are about to be oversaturated. We don't want to compete with the good job that Caesars is doing in the riverboat and the small casino market. We're the experts in integrated resorts."

Dividend Increase. LVS paid a special dividend of $2.75 per share and the Board of Directors increased the recurring quarterly dividend by 40% to $0.35, payable in March, 2013.


Marina Bay Sands reported lower EBITDA of $302.5M for Q4, 2012 as compared to $426.9M for Q4, 2011. The EBITDA margin was lowered to 42.2% in Q4, 2012 from 52.9% in Q4, 2011. The operating results were unfavorably impacted by lower than expected Rolling Chip win percentage of 2.14% for the quarter despite the second highest quarterly volume of $16.47B for the quarter. The Venetian and The Palazzo including the Sands Expo and Convention Center delivered, on a hold-adjusted basis, adjusted property EBITDA of $87.9 million, which was lower than $118.3M in 2011.


LVS is gaining from its competitors. Cotai Central saw a nearly 50% increase in visitors during the fourth quarter, and picked up market share from its competitors like Wynn Resorts (NASDAQ:WYNN), MGM International (NYSE:MGM) and Melco Crown (NASDAQ:MPEL) among both high-rollers and the hoi polloi, as stated by Citigroup's Anil Daswani. On January 31, 2013, WYNN reported Q4 profit that fell short of analysts' estimates as business in Macau declined. Profit, excluding some items, totaled $1.17 a share, which was below analysts' projection of $1.27 per share. WYNN is facing tough competitions from LVS and Galaxy Entertainment Group Ltd. However, WYNN will double the quarterly dividend to $1 a share. WYNN is fighting back with a new $4 billion resort under construction on the Cotai Strip, which will open in 2016 and the resort will greet visitors with air-conditioned gondola rides across a lake with fountains.

Fundamentally, LVS has an enterprise value of $42.39B and a market cap of $45.39B. LVS has a stronger revenue growth (3 year average) of 28.9, which is higher than the industry average of 7.9. LVS has higher operating margin of 21.7%, ttm, and net margin of 13.3%, ttm, as compared to the averages of 20.7% and 9.6%, ttm, respectively. LVS, however, generates lower ROE of 17.0, as compared to the average of 18.5. LVS's P/E of 30.0 is lower than the industry average of 101.0 but higher than LVS's 5 year average of 22.8. LVS has a forward P/E of 16.2, which is higher than S&P 500's average of 13.3.

Technically, the MACD (12, 26, 9) indicator has been showing a bearish trend, but the MACD difference converged on the last trading day. The momentum indicator, RSI (14), is indicating a strong buying momentum at 70.89. LVS is currently trading above its 50-day MA of $47.50 and 200-day MA of $43.36.

Reviewing Options

The most active call was Feb. 15, 2013 call at the strike price of $55.00 with a volume of 6,074 and an open interest of 31,566. The implied volatility is 31.5, and the chance of breakeven is 34.71. The historical volatility for LVS is 28.25 for 1 month, 30.03 for 3 months, and 31.77 for 1 year. For long-term bullish investors, a credit put spread of April 20, 2013 $40/$45 can be reviewed if LVS pulls back to $50/$51 price range.

Note: All numbers/prices are quoted from the closing of January 31, 2013 with the data provided from Barron's, Morningstar, Schaeffer's Investment Research, Inc., Google Finance, and Yahoo! Finance. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.