Las Vegas Sands Locks Up Cotai Expansion

Las Vegas Sands (NYSE: LVS  ) has received an extension on a key project in Macau that will add significant upside to the company's operations. The property, known as Lot 3, is located next to the Four Seasons and across from the company's Sands Cotai Central in the heart of the Cotai Strip. The property has been in limbo since Las Vegas Sands needed an extension from its original commitment to complete the property by August 2011 and wasn't going to meet the new April 2013, deadline either. Now, the company has until April 17, 2016, to complete the project, although the extension comes with a currently unknown penalty.

Sands was always confident that it would retain rights to the land, committing $96 million to developing the land already, but after losing Lots 7 & 8, there was at least some trepidation that Lot 3 might fall into the same category. Now investors know the company should have enough time to complete the project.

The next building boom in Macau
This isn't the only development going on in Macau right now. Melco Crown (Nasdaq: MPEL  ) is building Studio City, Wynn Resorts (Nasdaq: WYNN  ) has a new project being built on Cotai, Galaxy is building the second phase of its resort, and MGM Resorts (NYSE: MGM  ) is hoping to get the go-ahead on its Cotai project very soon. For the next few years, the Cotai skyline will be full of construction cranes and companies will be in a desperate search for labor that is short in Macau right now.

The stock market doesn't seem to be affected by the news, with shares slipping slightly today, but I think this is big news for the stock. When I compared Las Vegas Sands to Melco Crown last week, I pointed to a 7.64 enterprise value/EBITDA ratio (after adjusting for Cotai Central) as a grood value for the stock but gave Melco Crown the edge because of its growth prospects. This news gives Las Vegas Sands a way to grow further in Macau and may swing the advantage back to the gaming giant.

A lot of bang for your buck
Investors appear to be worried about a slowdown in Asia and expanded gaming affecting all gaming stocks, but I'm seeing a lot of value in the industry right now. Buying Las Vegas Sands with an EV/EBITDA ratio under 8 with another 4,000-room development in the pipeline gives investors great value. I still have an outperform CAPScall on the stock, and even though it is currently losing to the market by 15 points, I think the company will make that up in the long term.

Interested in reading more about Las Vegas Sands? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium manages an account that owns shares of Melco Crown and Wynn Resorts. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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  • Report this Comment On July 16, 2012, at 4:11 PM, MutualFundMonday wrote:

    "For the next few years, the Cotai skyline will be full of construction cranes and companies will be in a desperate search for labor that is short in Macau right now."

    Not true. All the analysts think all the operators have the ability to put shovels in the ground tomorrow which is erroneous. The biggest reason: none of the operators have development approval (which is the 2nd step after land concession) from Macau. LVS has already submitted a development plan for Lot 3 but the hang up appears to be tables. If LVS gets that worked out this year, the 5&6 workers will just move accross the street.

    The other reason you won't see cranes everywhere: there aren't enough workers. Sands Cotai Central is utilizing all the native workers and a lot of foreign workers. If LVS gets Lot 3 development plan approval, there won't be any for WYNN or GLXY or MPEL (who still has to amend its land concession for tables) which is why Macau probably hasn't approved anyone's development plans yet.

  • Report this Comment On July 16, 2012, at 7:51 PM, cp757 wrote:

    Travis good information. I still think getting the workers for WYNN and MPEL will still be a challenge. This is what Sheldon Adelson had to say about the project.

    From the 2011 Q4 CC:

    " We have applied to the government and submitted drawings for about a 4,000-room Lot 3 development. Now everybody, the analyst community, are giving points and value to MGM, to SJM, to Wynn, because they are in line to get lots and they don't have the lots yet. We own this lot; lock, stock and barrel. We paid for it years ago, and now we think that in consultation with the government, as to what they want, we're going to make a mass market plus a separate tower for VIP play on Lot 3. And so far, we're getting positive reaction on it'll be a thematic property, and we lead the path because we already own and paid for this lot. So we have the right to put the building up as soon as possible.

    Sands lot 3 could be open in three years

    04/12/2012

    Sands China Ltd chairman Sheldon Adelson says the piling works on lot three in Cotai could be in by year-end.

    Parcel three, next to the Four Seasons, is to include a 3,600-room property.

    “We’re looking to put the piling in by the end of this year,” he said, adding that it could then take up to 30 months for the property to be completed.

    I think it is better to go by what Adelson says. Macau wants him to win because he will be the main operator in Cotai Central. This was his "vision" and he is the main attraction. Macau wants his vision to be carried out and managed.

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