A year ago, everyone was bearish on casino stocks. Amid global economic uncertainty, no one was ready to place their bets on the lavish, decadent palaces of excess – casinos. Las Vegas Sands (LVS: Charts, News, Offers), which owns the Venetian, the Palazzo and Sands casino hotels, had experienced declining margins and crumbling revenue for the better part of the previous two years. At the end of July, however, it announced a massive surprise of earnings of 1.59 billion, or 17 cents per share, 50.7% higher than the Street consensus of 8 cents due to massive profits from its Macau and Sinagpore casinos. Have Asian casinos finally saved this stock, which traded at 1.50 a year and a half earlier, teetering on the brink of bankruptcy?
Daily Chart
If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here
Stock Analysis
Macau, which is a short ferry ride from Hong Kong, is an autonomous region governed under the Hong Kong S.A.R. (Special Administrative Region) since its transfer from Portuguese rule in 1999. As such, it is allowed special economic privileges, one of which is a gambling industry. It is the only city in the country to allow for the construction of casinos. Macau has long been forecast to become the Chinese Las Vegas, due to the rapid rise of a middle class and more efficient modes of transportation between the major Chinese cities. Las Vegas Sands is the biggest foreign investor in Macau, with three casino hotels on the main strip, all of whose net revenue rose in the last quarter – Sands by 29%, Venetian Macau by 31% and the Four Seasons Macau by 196%. The company’s growth in Macau continues to outpace its major American rivals, Wynn (WYNN: Charts, News, Offers) and MGM (MGM: Charts, News, Offers), as well as local casinos such as the famed Grand Lisboa. In addition, the company was granted one of two integrated resort licenses to develop properties in Singapore, a country whose strict zero tolerance regulations regarding moral and criminal activities are well documented. On June 23, it opened the Marina Bay Sands Resort there, which earned $94.5 million in gross profit in the first two months of operation.
The company’s revenue from China and Singapore has now become its heart, bringing in 75% of total sales in the last quarter. The remaining 25% is located in the U.S. and has not gained significantly, but is still treading water with its Las Vegas and Bethlehem, Pennsylvania based properties. Margins have increased significantly to 4.93%, up from -8.08% the previous year.
18 months ago, most investors doubted the survival of LVS, since the company was billions in debt with negative margins. Yet a strong turning point for the company came in November 2009, when Las Vegas Sands offered the long awaited Chinese IPO for Sands China, which raked in over 3 billion USD. On August 18, the company announced that it would pay back 1 billion in debt and amend its 3.9 billion credit facility so their outstanding loans would be pushed back to 2015 and 2016, to reduce interest payments. Las Vegas Sands is still not back in black yet, incurring a net loss of 4.7 million in the last quarter, but a year earlier that loss was a massive 222.2 million. The stock market is always priced forward, so many investors have pumped their money into LVS, hoping the company’s miraculous turnaround and restructuring centered in Asia will revive this stock, which traded as high as $139 per share back in 2007.
Are Macau and Singapore only the beginning of the rebirth of LVS? Other fertile markets for casino development include Japan, Korea and the Penghu Islands in Taiwan, all of which would draw in the same new Asian upper middle class clientele that LVS casinos profit from. If these Asian mega casinos continue to expand and thrive with the appreciation of the Chinese yuan, any losses on the American side would be wholly absorbed by their revenues, and make LVS an outstanding long-term stock to buy today.
Other News About LVS
- Asian Bonanza Sees LVS Pay Down Debt – LVS paying off its debts
- Las Vegas Sands Filling Marina Bay Retail District – Filling out the rest of its Singapore investment
Other Stocks in the News
- Sands China profit, revenue up in first half – Good news for Chinese investors
- Wynn Resorts: What Happens When Chinese Growth Slows? – An opposing view from its biggest competitor
Other relevant articles you may like
Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
Macau is governed by Macau SAR, it’s not under Hong Kong