Cotai Continues to Be Hot but Singapore Drags on Las Vegas Sands

The Cotai Strip continues to be the best location in gaming, and no company has more exposure there than Las Vegas Sands (NYSE: LVS  ) . So it should be no surprise that Cotai helped drive the company's revenue up 21.4% in the first quarter to $4.01 billion and net income up to $793.9 million, or $0.95 per share.  

On a hold-adjusted basis, which normalizes luck that can swing earnings higher or lower in any given quarter, net income rose 19.4% to $711.5 million, or $0.87 per share.

Growth at Sands Cotai Central (seen here) helped drive Las Vegas Sands in the first quarter. Source: Las Vegas Sands. 

What's driving Las Vegas Sands?
The Venetian Macau and Sands Cotai Central continue to be the growth drivers for Las Vegas Sands, and with $735.3 billion in EBITDA last quarter, up 9.6% from just one quarter earlier, they're performing incredibly well. Sands Cotai Central also has more upside potential as it ramps up operations and margins expand. The positive results also point to strong results for Melco Crown Entertainment (NASDAQ: MPEL  ) , which generates most of its earnings from City of Dreams next to Sands Cotai Central.

A top view of Marina Bay Sands, which is struggling more than expected in 2014. Source: Las Vegas Sands

Four Seasons Macau, Sands Macau, and the Las Vegas Properties continue to be positive EBITDA producers, but results can be choppy, particularly at Sands Macau and Las Vegas. Four Seasons is improving steadily; look for it to be a growth driver as Las Vegas Sands completes The Parisian next door.

Singapore is a big drag on earnings
The big disappointment this quarter came from Singapore, where Marina Bay Sands was supposed to be the most profitable resort in the portfolio. But that spot is now owned by The Venetian Macau and Singapore's gaming trends continue to disappoint.

For a long time, investors could point to a hold percentage below the expected 2.7%-3% as a reason results were disappointing, but now it's clear that play is slowing down as well. You can see below that over the past year, the number of VIPs playing in Singapore has dropped off considerably, which has offset a better hold percentage recently.


Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Rolling Chip Volume

$18.21 billion 

$14.37 billion 

$13.79 billion 

$13.73 billion 

$12.94 billion

Rolling Chip Win %






Source: Company earnings reports.

Mass-market table and slot play has also been fairly flat for two years, another sign that Singapore may have reached its max profitability.

It's these struggles in Singapore that are also hurting Las Vegas Sands' stock today. The company owns 100% of the resort there but just 70% of Macau, so Singapore's struggles actually have more impact on long-term value.

What to expect in the future
Cotai will continue to be where Las Vegas Sands gets its growth from, but the growth figures may slow in coming years. The Parisian and resorts from all five of the other concessionaires will open in the next three to four years, diluting Cotai's growth. Las Vegas Sands is primed to take advantage of the Cotai market, but competition will increase.

As for Melco Crown, first-quarter results will likely be similarly good, but look for even more challenges than at Las Vegas Sands long term. Studio City isn't approved for table games and City of Dreams will be diluted just like every other existing Cotai resort.

Las Vegas Sands is still a rock-solid gaming stock, but it's expensive, with an enterprise value of nearly 14 times EBITDA. Melco Crown is even more expensive at 16 times. I'd be cautious buying either stock because competition is coming to Cotai and that will slow growth for both companies long term.

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  • Report this Comment On April 28, 2014, at 11:54 AM, spokanimal wrote:

    Re: MBS Singapore.. very good analogy, Travis.

    I would add that the jury remains out until we actually see some decent economic growth in Singapore, but it's doubtful that Singapore's economic state would account for more than 30 to 40% of MBS's drop in MBS's VIP betting volumes.

    Also a consideration is the opening up of IRs in Manilla Bay, but the developments there are smaller, and the results thus far with the privately owned ventures there is tepid. In fact, so tepid that a govt. run facility in Manilla itself was closed recently. It's doubtful that development there so far is having any meaningful impact on Singapore gaming.

    Given the results at MBS, we should learn more, from a "confirmation" perspective, when results come out for Resorts World Singapore (RWS) in a couple of weeks. So far (2013), RWS has exhibited a prelude to what we just saw at Marina Bay Sands, in that gaming revenues declined by 8% at RWS in 2013, to S$2.185B, while non-gaming revenues climbed by 18% with solid Hotel occupancy.

    If we should see a similar, continuation in VIP volumes at RWS in the upcoming announcement, then it would go far in terms of confirming that MBS's volume issue is not company-specific...

    ... something that I'm sure is on the minds of many since Tom Arazi's departure for CEO job over at Bloomberry.

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Travis Hoium

Travis Hoium has been writing for since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things.

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