Asia Drives Las Vegas Sands' Growth

Las Vegas Sands' (NYSE: LVS  ) stock is on fire today, up 5.4% after the company's reported fourth-quarter results showed improvement in Macau and Singapore. Investors are overlooking the $0.05 earnings miss when the company reported earnings of $0.54 per share and are instead looking at the 20.9% increase in revenue to $3.08 billion. 

Let's take a look at how the company did location by location. 

What's going on in Macau
Last year in Macau we saw a clear trend of slower VIP play and continued growth in mass-market play. This makes sense because infrastructure is improving in Macau and as the middle class grows, the gaming base will grow as well.

Now we're starting to see Las Vegas Sands' strategy of focusing on this mass market and Cotai Strip beginning to pay off. The company had a 21.1% market share in the quarter, greatly improved from 15.5% a year ago because of Sands Cotai Central. But this compares to 18% in the VIP market. Since VIP play is still nearly 70% of Macau's gaming, that means Las Vegas Sands is taking a very large share of mass play.  

So, that's the broad overview; here are the detailed results. Below I have given the EBITDA at Las Vegas Sands' four casinos and the year-over-year growth.

Casino 

Q4 2011

Q3 2012

Q4 2012

Y/Y Growth

Venetian Macau

$283.3 million

$299.0 million

$333.1 million

17.6%

Four Seasons Macau

$63.0 million

$54.4 million

$89.7 million

42.4%

Cotai Central

N/A

$53.7 million

$108.0 million

N/A

Sands Macau

$87.8 million

$80.9 million

$91.5 million

4.2%

Source: Company filings.

When we compare growth to the 9.9% gaming growth Macau experienced year over year, you can see that the Venetian Macau and Four Seasons performed very well. Sands Macau, on the other hand, did not.

This continues a trend of gaming dollars moving from the Macau Peninsula to Cotai, where new construction is focused. I would expect this trend to be a drag on results for MGM Resorts (NYSE: MGM  ) and Wynn Resorts (NASDAQ: WYNN  ) because their only exposure is to the Macau Peninsula. On the flip side, Melco Crown (NASDAQ: MPEL  ) is Las Vegas Sands' neighbor on Cotai and has performed extremely well after Cotai Central began opening. The trends at these three companies will be worth watching as earnings continue to come out.

What is interesting in the Macau results is the relative weakness in Cotai Central. The resort isn't completely open so it's tough to completely judge it, but in the past I've estimated $1.0 billion in EBITDA from the complex given the number of rooms and table games. Right now, that seems like it could be a long ways off.

Overall, great numbers from existing Macau casinos and somewhat disappointing, but not disastrous, numbers from Cotai Central.

New normal in Singapore
Marina Bay Sands reported another disappointing quarter. Overall, revenue dropped 11.1% from a year ago and EBITDA fell 29.1% to $302.5 million. CEO Sheldon Adelson said the EBITDA figure would have been $406 million if it weren't for bad luck, but if it weren't for good luck, the Macau numbers would have been worse -- so you can take luck for what it's worth in both Macau and Singapore.

Singapore is currently the opposite of Macau. Mass play at both tables and slots are down, but VIP play was up from a year ago. EBITDA has swung wildly at the resort since it opened, but it appears to be settling in far lower than the $472.5 million max we saw in the first quarter of last year.

Las Vegas struggles
In Las Vegas there's really no way to sugarcoat it -- the numbers were terrible. Net revenue was down 9.2% to $308.3 million, EBITDA fell 34.7% to $52.8 million, and table game drop, slot handle, and occupancy were all down.

As we look forward to results from MGM Resorts and Caesars Entertainment, in particular, this is not great news for these Las Vegas-centric companies.

The future for Las Vegas Sands
The Macau mass market and Cotai in particular are doing very well for Las Vegas Sands, and I expect that to continue going forward. Last quarter's results were strong, and considering the growth in market share, the company is outperforming Macau rivals right now.

The next step for the company is building The Parisian, which will open in 2015 (or more likely 2016) with new resorts from Wynn, MGM, and SJM. This will further expand the draw of Cotai and create a critical mass of the company's casinos in a small area. The company is also looking into other areas of growth including Japan, Vietnam, and Europe, but nothing is set in stone right now.

I still think the stock is too expensive to be a buyer right now. The stock trades at 11.5 times trailing EBITDA, a steep price for gaming companies considering the slowing growth of Macau. If the stock comes down some, I would consider buying, but for now I'll stay on the sidelines.

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