Wow, China is unpredictable. While China's recent GDP and march trade data were strong, recent economic data coming out of China has been horrible.
Key leading indicators such as electricity usage, exports, and new residential home starts, were also far below average analyst expectations in May, with China's imports having expanded at just .3% in April, compared to analyst expectations for an 11% increase.
Most of the broader Chinese indexes such as the Shanghai composite, and one of its tracking exchange traded funds, FXI, has also lagged the S&P 500, and its tracking exchange traded fund, SPY, by a fairly wide margin over the last year.
Still, companies such as GE, Apple (AAPL), Citigroup (C), Nike (NKE), and Yum (YUM), and Las Vegas Sands (LVS) have all reported fairly strong earnings in Asia, and Chinese consumer spending appears to be holding up fairly well even as the country's real estate and construction sector weakens.
One of the most heavily levered companies to Chinese consumer spending is Las Vegas Sands. Today Las Vegas Sands gets nearly 80% of its revenues from Asia. This past quarter the company reported an 31% increase in year-over-year revenue.
Macau has held up well despite the weakness in the real estate and construction sector in China. This past month revenues in Macau were up nearly 22% year-over-year.
Las Vegas Sands is the strongest positioned U.S. casino operator in Macau today. In addition to operating the Sands Macao casino and the Venetian and Four Seasons Hotels, Las Vegas Sands also just opened a new nearly 4.5 billion dollar casino in Macau, which is suppose to generate around 1.2 billion in revenue this year alone.
Las Vegas Sands was the most heavily levered company to real estate since the company used commercial real estate investment to finance its operations. The company has cleaned up its balance sheet, focused on its strongest markets, and has increased its free cash flow at a rate of over 30% a year.
In the last three years Las Vegas Sands has increased its net operating cash flow from 600 million a year in 2009, to 2.6 billion in 2011. The company also increased its dividend from under 1% to around 2% today.
Las Vegas Sands has been successful at taking market share in the VIP segment in Macau with new management in China, and the company has also been able to get licenses to build new casinos in Macau and other key countries such as Singapore.
This past quarter the company reported a 30% year-over-year rise in net revenue, and strong market share gains in the VIP segment of the company's Macau business.
While the stock sold-off on Las Vegas Sands' decreased revenue growth at some of its more mature resorts in Macau, such as the Venetian, the company's new opening in central Cotai should more than offset the slower growth rate at some of its properties.
To conclude, while companies such as Rio Tinto (RTP) and BHP Billiton (BHP) continue to report weakness in China's real estate and construction industry, Las Vegas Sands and other casino operators are continuing to see strong growth in Macau.
Las Vegas Sands used to be heavily leveraged to the U.S. real estate market, but today the company is generating significant free cash flow and has little short-term debt.
With analysts expecting 20-30% growth over the next five years, Las Vegas Sands's forward price to earnings ratio of around 15x an average estimate of next year's likely earnings suggests this company could have moderate to significant upside if the economic outlook improves in the back-half of the year.