Las Vegas Sands: Front Runner In Japan's Potential Casino Industry

| About: Las Vegas (LVS)

Summary

Japanese Prime Minister, Shinzo Abe, visited Singapore and toured the Marina Bay Sands owned by Las Vegas Sands.

Shinzo Abe voiced his support for a bill in Japan to legalize casino gambling.

Japan could become the third largest gambling destination, behind Macau and the United States.

Japan's Prime Minister, Shinzo Abe, visited Las Vegas Sands' (NYSE:LVS) Singapore resort the Marina Bay Sands on May 30, 2014 and voiced his support for legalizing gambling in Japan. This past December, legislators from the ruling Liberal Democratic Party submitted a bill to legalize casinos. Until this point the Prime Minister had remained silent on the issue, but proclaimed his full support for gambling in Japan after touring the Marina Bay Sands in Singapore, saying, "I think integrated resorts will be a key part of Japan's economic growth strategy." Japan has seen weak economic growth over the several years despite a rebounding of the Nikkei, and lawmakers are eager to prove they are doing everything possible to restore economic growth to Japan. The current parliament session ends next month, which makes passing the bill difficult in the short-term. However, political and industry sources believe the bill could get passed in the extraordinary session in the fall. Any delays in debating the bill are unlikely as it would result in any potential casinos not being completed by the 2020 Tokyo Olympics.

Japan is the third largest economy in the world and analyst have predicted that legalizing casino gambling in the country could make it the third largest gambling destination behind Macau and the United States. Las Vegas Sands brought in $13.8 billion in revenue in 2013, with 85% coming from their Asia operations. Macau brought in over $8.8 billion in 2013, Singapore $2.96 billion and Las Vegas $1.5 billion.

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(Japan Prime Minister Shinzo Abe touring Marina Bay Sands)

With the Japanese Prime Minister visiting Las Vegas Sand's Singapore casino on his latest trip and Las Vegas Sands' CEO, Sheldon Adelson, pledging $10 billion to build an integrated casino/resort, the company should have an inside track if Japan legalizes casino gambling. Adelson's $10 billion pledge is double that of competitor Melco Crown (NASDAQ:MPEL), which pledged up to $5 billion if Japan opens the door for casino operators. MGM Resorts (NYSE:MGM) stated they would have a $5-$10 billion budget for Japan and Wynn Resort's (NASDAQ:WYNN) president, Matt Maddox, stated, "The opportunity is very good, but you have to be careful in throwing billions and billions of dollars without really understanding what the goals are of the city."

Japan is the biggest prize in the casino industry. It would likely become the second biggest casino revenue generator in Asia, behind Macau. In 2013, Macau brought in over $45 billion and Singapore brought in around $7 billion. It is estimated Japan could generate $10 billion in annual revenue and some analyst believe it could one eventually generate nearly $40 billion in annual revenue. Clearly getting a slice of this market would be a huge win for any casino operator. Las Vegas Sands has had tremendous success in Asia and has shown it is willing to work closely with authorities during construction. Las Vegas Sands executives have already been able to meet with Shinzo Abe and deliver their hands-on presentation of their casino. Las Vegas Sands views Tokyo as the main prize if Japan legalizes gambling and would likely concentrate their efforts there as opposed to Osaka. With an affluent population of around 13 million and close proximity to wealthy Asian gamblers, a casino/resort in Tokyo could surpass the company's Singapore Marina Bay Sands casino, which brought in revenue of nearly $3 billion and operating income of $977 million in 2013 alone. The Marina Bay Sands cost $5.4 billion to build in 2010, which would most likely push the Tokyo price tag upward of $6 billion. However, this would be a small price to pay for winning the biggest prize in the industry and establishing a market leading presence in the 3rd biggest economy in the world.

Conclusion

Before the Prime Minister's trip to Singapore and his visit to the Marina Bay Sands casino, Las Vegas Sands was viewed as a front runner to be the biggest winner of Japan legalizing casino gambling. After this trip and Abe's new vocal support for legalizing gambling, Las Vegas Sands is the clear leader among its rivals. This news alone should give a nice bump to LVS shares in the short-term and set the company up for great long-term success. If Japan does legalize gambling and the company does win a bid to build an integrated casino/resort in Tokyo, it could increase revenue by 20%. A conservative $3 billion annual revenue would match Las Vegas Sand's Singapore casino's performance and increase the company's dominance in the quickly growing Asian casino industry.

Even without winning over Japan, Las Vegas Sands is a great investment opportunity. The company is currently growing revenue by over 20% and it has a projected 2014 EPS growth of around 35%. In addition to the sustained growth, the company pays a 2.7% dividend and has a forward P/E of just 18.

Disclosure: I am long LVS. 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.