Las Vegas Sands Turns the Corner

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After years of unprofitable operations while it built its Macau and Singapore projects, Las Vegas Sands (NYSE: LVS  ) has finally turned the corner into profitability. Said profit wasn’t much -- $14.7 million, or $0.01 per share -- but it’s a step in the right direction.

Macau led the way again with $300.7 million in EBITDA, as revenue grew 40.7% to $1.04 billion. Macau EBITDA accounted for 63.5% of worldwide property EBITDA in the quarter, continuing Las Vegas Sands' reliance on Asia for its profit.

But the big story this quarter was the opening of Marina Bay Sands in Singapore. So far, investors have cheered results at the brand new resort, but let’s put the numbers into perspective. EBITDA for Marina Bay Sands was $94.5 million, off revenue of $216.4 million, in its first 65 days of operation. This 43.7% EBITDA margin has caught the eye of a lot of investors, but it shouldn’t be surprising to those who watch closely.

A low tax rate was one of the reasons why Las Vegas Sands, MGM (NYSE: MGM  ) , and Wynn Resorts (Nasdaq: WYNN  ) -- the latter dropped out at the last minute -- pursued the Singapore project. Singapore takes only 17.3% in effective gaming, goods, and services taxes, while Macau takes a much higher 39%. This difference effectively increases casino win per bet, and therefore the casino's EBITDA margin as well. So the high margin number didn't owe to some great effectiveness by Las Vegas Sands, or a spectacular opening. It’s just the effect of a lower tax rate.

The other item that caught my attention while listening to the conference call was Las Vegas Sands' success in deleveraging its business. The company paid down $420 million of debt in the quarter, excluding Singapore. This is very important, since just over a year ago, Las Vegas Sands was in danger of breaking its debt covenants and going bankrupt.

Overall, Las Vegas Sands' numbers were solid. Debt reduction will help keep it out of trouble, and if Macau and Singapore continue to perform well, investors should be very pleased -- even if Las Vegas itself remains a drag on results.

More on gaming:

Fool contributor Travis Hoium is long Las Vegas Sands, but holds no financial position in any other companies mentioned. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

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  • Report this Comment On August 04, 2010, at 1:04 PM, spokanimal wrote:

    2, additional, important points about Sand's new Singapore resort:

    1. Their "table hold" during Q2 was poor (eg: the players were lucky). With "normal" VIP table hold of 2.85%, Marina Bay's EBITDA would have been $114 million instead of the $94.5 million you cited.

    2. The Singapore resort was only partially open. As such, it had dis-proportionate amounts of overhead and startup costs relative to the $216 million of revenue it produced. To have generated a 44% EBITDA margin under those circumstances is rather shocking. As such, as resort revenues ramp steeply over the next 2 quarters, and overhead/fixed-expense absorption becomes more broadly covered by higher revenues, margins could very well surprise everybody's projections.

    Marina Bay is well on it's way to becoming the most profitable gaming resort on the planet.


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