Do You Need Another Reason to Bet on Las Vegas Sands? Here Are Two


Sands CEO Sheldon Adelson is leading the company across Asia, to the benefit of its shareholders. Photo: Bloomberg

Las Vegas Sands (NYSE: LVS  ) reported industry-leading earnings the other week with first-quarter 2014 revenue of a record $4.01 billion, up over 21% year-over-year. Supported mainly by the company's huge bet on Macau, which paid off with nearly 50% EBITDA growth at its Chinese operations, profits for the company have continued to soar this quarter. Compare those rising revenues to the 10% revenue growth of Wynn Resorts (NASDAQ: WYNN  )  and the 12% revenue growth of MGM Resorts (NYSE: MGM  )  for the same period. 

The revenue drivers for each of these casinos over the last few years have been their Asian operations. However, for MGM and Wynn, those Asian revenues were restricted to those from Macau. As for Las Vegas Sands, Macau's massive revenues combined with those from the company's operations in Singapore. Not only does Las Vegas Sands have a much bigger bet on Asian operations than MGM and Wynn do at 88%, 75%, and 37% of global revenue, respectively, but the company is more diversified in Asia because its revenues come from different countries.

Two more reasons why investors should be bullish on Las Vegas Sands, other than its amazing quarter, are the company's continually growing operations in Singapore and its prospects in Japan.

Singapore gets sweeter
When Las Vegas Sands first attempted to bid for a casino in Singapore, it wasn't an easy task. The Singaporean government made sure that any casino that received one of the two bids to operate in the country would do so under strict rules and the casino had to prove that it added value to the country. Wynn Resorts CEO Stephen Wynn criticized the Singaporean government for micromanaging his bid to the point of making it unprofitable, and thus he and his company exited the race. Las Vegas Sands held strong and offered the government an integrated resort that would wow tourists with much more than just gaming. It worked and the Singaporean government rewarded the company with a 30-year contract to operate a casino, as well as the assurance that the government would not allow additional casinos other than these two into the country for at least 10 years.

Though the company's Singapore operations have had less-than-optimal quarters in the past, overall the casino there is doing very well for Las Vegas Sands and appears to be getting better. Marina Bay Sands, the company's Singaporean integrated resort, posted a net first-quarter profit of $435.2 million, up 9.7% year-over-year, helped in large part by non-gaming revenue. While it was not as strong as the growth the company reported for Macau during the quarter, the company is driving total profits higher through the combination of both revenues from Macau and Singaporean revenues.


Marina Bay Sands: this magnificent resort has become an icon of Singapore. Photo: Las Vegas Sands

Now, the company is planning to add on even more to the already expansive resort by increasing the number of hotel rooms the resort offers with an extra 1,500 rooms added to a resort that already has 2,563. To do so, the company will need permission. CEO Adelson said on the company's recent earnings call that "Singapore, they don't work as fast as other cities. They have a lot of different ministries and agencies participate in growth." However, this shouldn't be an issue, as he also mentioned that the government has sought to help the casino maintain its appeal to keep Singapore's competitive advantage throughout the region. 

Japan's successful bid for the 2020 Olympics will require some extra funding, making this an even more enticing time for allowing casinos. Photo: Japan Times

Getting ready for Japan
Japan currently bans casinos, but that will most likely change when the Japanese government votes early this summer on legislation that will allow casinos to operate in the country. Because both parties in the government are happy that the casino revenues could fund part of the cost of the coming 2020 summer Olympic games in Tokyo, most analysts believe the measure will pass without much hassle. Most likely, four bids will be awarded in Tokyo and Osaka. Analysts estimate that Japan could become the second-largest gambling market in the world if it opens up to gaming companies.

Las Vegas Sands (NYSE: LVS  ) wants to be a leader in the bidding for casinos in Japan. At a conference in Tokyo earlier this year, Sands CEO Sheldon Adelson said that "We will spend whatever it takes...would I put in $10 billion? Yes."  There are many similarities between the Singaporean and Japanese governments in regard to their concerns about casino companies. In Japan, the government wants to assure that the coming casinos can help to stop underground gambling, mostly run by gangs in the slums of Tokyo, by putting gambling into well-regulated resorts that will boost positive tourism in the country.

Speaking about how Las Vegas Sands' Singaporean model could work well in other countries, CEO Adelson said that "MBS' proven success in delivering the economic benefits of our convention-based integrated resort (IR) business model is allowing it to serve as the most important reference site for merchant jurisdictions that are considering IR development." Sands was able to win over the government in Singapore in 2006, and it has a strong shot at winning again in Japan.

Foolish Takeaway: Do you really need any more reason to be bullish on Las Vegas Sands?
If incredible overall revenue and profit growth, as well as plans for expansion in Macau, weren't enough to sway investors' opinions about Las Vegas Sands, these two extras should help. With increasing revenue from expanding operations in Singapore, as well as what will hopefully be the growth story of Japanese gaming, Las Vegas Sands' profits over the coming years are set to continue soaring. Now may be the time to get bullish on Las Vegas Sands' future prospects and take a position in this industry-leading company.

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  • Report this Comment On May 14, 2014, at 12:25 PM, spokanimal wrote:

    Correction to your second paragraph, Bradley: That's "88%, 37% and 75% respectively".

    A Japan license, and Marina Bay expansion are indeed, 2 additional reasons to like how the future looks for continued growth at Las Vegas Sands.

    2 others, that will certainly perpetuate the double-digit growth of Macau gaming in general, are the bridge from Hong Kong, and the massive development that is happening on Hengqin Island next door.

    In the case of Hengqin, it's important to note that when one crosses the Lotus bridge from Hengqin to Macau, the very first avenue they hit after crossing the bridge, is the "Cotai Strip", where LVS operates half of the resorts that are there, or will be there in the years to come.

    The future, Cotai resorts of MGM, SJM and Wynn are "off-strip" resorts that are further from the Lotus bridge than the Cotai Strip itself is.

    Spokanimal

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