Las Vegas Sands: Benefiting From a Growing Macau Market

On Tuesday night, Las Vegas Sands (LVS) reported 4th quarter 2006 adjusted EPS of $0.37 vs. Street’s $0.31. Adjusting for favorable table hold percentage at both Venetian (significant at ~+$30 million in EBITDAR) and Sands Macao (+$5 million), EBITDAR was (still) a very respectable $209 million.

Upside came from strong overall volumes at the Venetian; Sands Macao was roughly $1 million shy of estimates. In the 4th quarter of 2006, the Venetian experienced strong growth in slot revenues (+14% year over year), F&B revenues (+17% year over year), & room revenues (+10% year over year, primarily on room rate). This bodes well for Wynn Resorts (WYNN), MGM (MGM) and other Strip operators, and speaks to healthy volume trends on the Las Vegas Strip which have carried over into the 1st quarter 2007.

In the 4th quarter of 2006, Sands Macao grew casino revs +31%, driven by slightly favorable hold percentage and additional gaming capacity from its podium expansion. EBITDAR margins of 31.9% were below our forecast of 36.0%, which is reflective of VIP/mass market mix & higher staffing levels/expenses. The latter drag should dissipate in the 3rd quarter 2007 ($3 million a quarter), when these employees move to the Venetian Macao.

Net-net, the Macau market continues to grow/evolve and LVS’ comments/volume indicators suggest strong 4th quarter 2006 Macau (and Strip) results from WYNN (reports end of Feb.). The market is benefiting from continued relaxed travel restrictions from Mainland China & improving casino product (Sands, Wynn). Analysts are modifying EPS estimates. Our near and longer term EBITDAR estimates remain relatively the same. While analysts are positive on LVS’ growth, the current share price largely reflects the current value of its existing operations, the value of its out-year growth in Cotai, Singapore, and Pennsylvania, as well as the NPV of the profits associated with its vast asset monetization opportunity set.

Comments

[Saul Sterman:]

I did the math (yours). I still get 82, tops 87. How do you get to $100 per share?

2007 Feb 07 08:28 AM