As Las Vegas Sands (LVS) releases its Q3 2012 earnings on November 1, its performance in the Asian market will be in focus. The company has a strong presence in this region with almost 75% of its valuation coming from hotel and casino businesses in Macau and Singapore. Given the recent slowdown in the Chinese economy and slightly soft results of competitor Wynn Resorts (WYNN) in Macau, we expect Las Vegas Sands’ Q3 results could be challenged. However, the company’s stronger foothold and performance compared to its competitors in Macau will be a supporting factor against easing economic growth in China.
The Macau business constitutes roughly 55% to Las Vegas Sands’ value as per our estimates. However, the Macau gaming market is VIP centric. The majority of the revenue comes from high rollers or VIPs, accounting for about 70% of Macau’s total gaming revenue.  This section has suffered softness due to the slowdown in China’s economic growth as evident from the recently released Wynn Resorts’ earnings results. China’s economy grew by only 7.4% in Q3 2012, marking the seventh consecutive quarter of economic slowdown. 
Nevertheless, Las Vegas Sands has started to focus on the mass market in Macau with its Sands Cotai Central resort that opened in April 2012. The mass market presents a good opportunity for Las Vegas Sands. While the casino earns less than 3% of the VIP table drop as its revenue, the mass market table games generate around 30% of the table drop as revenue. Additionally, while the VIP market is quite vulnerable and dependent on the economy, the mass market has been growing steadily.
In essence, the Macau results for Las Vegas Sands will be a mixed bag impacted by the weakness in the VIP gaming segment and growth in the mass market segment. Investors should also watch out for more color on the company’s expansion plans in Asia, especially South Korea. Geographic diversification will make it less vulnerable to local economic headwinds in certain regions.
Our price estimate for Las Vegas Sands stands at $50, implying a premium of roughly 10% to the market price.
- The Top Stock In Gaming, Daily Finance, Aug 29 2012
- China Q3 growth slows, but worst may be over, The Economic Times, Oct 19 2012