Call it the luck of the big draw.
Las Vegas Sands (
) began betting nearly a decade ago that Macau could be the
world's next gambling center.
Already a cornerstone company in the buildout of the Las Vegas
Strip, Sands has hit the jackpot again in Macau, the only place
in China where gambling is legal.
Through business skill and good fortune, Sands has helped make
Macau the world's top gambling destination. It has long outpaced
Sands is one of the biggest players in the gambling haven,
where it owns properties through its 70.2% stake in Sands China
Las Vegas Sands properties on Macau include the Venetian
Macao, Sands Macao, the Plaza Macao and its most recent Sands
Cotai Central, opened in April 2012.
The firm owns and runs the Marina Bay Sands resort in
Back in the U.S., Sands owns the Venetian Las Vegas and
Palazzo resorts, and the Sands Expo And Convention Center -- all
in Las Vegas. But it gets the bulk of its top and bottom lines
Despite the slowdown in China's economy, business has been
booming in Macau, as members of the country's fast-growing middle
class continue to flock to the gambling haven. Macau gaming
revenue rose 17.6% in August, according to the Macau Gaming
Inspection and Coordination Bureau.
Las Vegas Sands has been cashing in on Macau's good fortune.
Strong gaming volumes in the former Portuguese colony fueled
winning results in the second quarter. Earnings surged 48% to 65
cents a share, ending four quarters of declining or flat
earnings. Revenue climbed 26% to $3.24 billion. Consolidated
adjusted property EBITDA, a key measure of operating performance,
was up 31% to $1.1 billion.
Cotai Strip Draws Crowds
In Macau, Sands saw more than 14 million visitors to its
properties on the Cotai Strip. Adjusted property EBITDA surged
53.2% to $657.2 million. Its mass table win in Macau was up 61.1%
to $930 million.
Las Vegas Sands has been winning in Macau on a few fronts as
it benefits from the growth of higher-margin mass-market gamblers
flocking to the region from China and a surge in its hotel room
capacity at a time when room supply in Macau is tight and demand
The company has seen a surge in its hotel room capacity over
the past year or so with the completion of the first two phases
of the Sands Cotai Central. The integrated resort complex
features rooms and suites under the Sheraton, Conrad and Holiday
Inn brands. In all, the complex has added close to 6,000 new
rooms to Las Vegas Sands' capacity.
The property includes approximately 300,000 square feet of
gaming space with approximately 460 table games and 2,200 slot
machines; roughly 800,000 square feet of retail, entertainment
and dining space; and more than 550,000 square feet of meeting
facilities and a multipurpose theater.
"We are big believers that supply drives demand growth in the
market, and the Sands Cotai Central, with almost 6,000 rooms, is
the largest hotel complex in Macau," said Telsey Advisory Group
analyst Christopher Jones. "Their competition does not have the
same kind of supply it's had over the last 12 months."
The expansion comes at a time when room supply is tight, and
operators with the greatest room counts have a competitive
advantage over those with insufficient hotel supply, Jones noted
in a report.
That supply is particularly important at a time when
mass-market demand for accommodations is growing. While growth
has slowed among VIP customers over the past year, China's huge
numbers of middle-class gamblers are helping to pick up the
"There's been a move to mass-market gaming, which is more in
line with what you see in Las Vegas," said Jones. "And it's more
profitable for the casinos."
The mass market is more lucrative for casino operators because
they don't have to pay VIP junket operators to bring in
middle-class customers. Junket operators serve as middlemen for
the casinos, drawing high rollers with free rooms, travel and
"The VIPs either come to Macau and get credit extensions from
the operator directly or through a junket," adds Susquehanna
Financial Group analyst Rachael Rothman. "The mass-market person
is someone who comes to the casino without any credit extension
and comes to gamble."
Mass-market gaming fetches higher EBITDA margins -- in the 30%
to 40% range vs. the mid-teens for VIP gaming, Jones says.
In the second quarter, the company saw strong growth and
operating momentum in Macau, said CEO Sheldon Adelson in a
The Venetian Macao kept up strong visitor and financial
performance. Adjusted property EBITDA rose 57.5% to $360.9
Following The Money
What happens in Vegas doesn't always stay in Vegas. That's the
case with Las Vegas Sands. Jones estimates Las Vegas is less than
7% of Las Vegas Sands' overall earnings.
He says the overall climate in Las Vegas is getting better,
but not on the gaming front. There's been an acceleration in
nongaming revenue, with the most improvement in hotel room
July gambling revenue in Nevada totaled $926 million, down 8%
from a year ago, according to the Gaming Control Board. On the
Las Vegas Strip, gaming revenue fell 14.4% and downtown Vegas
revenue slipped 9.7%.
The company has plans for more development in Macau. The
Parisian Macao, a fifth integrated resort property on the Cotai
Strip and its sixth in Macau overall, is under construction.
Based on the current construction schedule and subject to timely
government approvals, it's targeting the opening for late
Analysts polled by Thomson Reuters expect full-year earnings
to rise 35% to $2.88 a share. They forecast a 17% gain in
"Continued and accelerated and strong performance in the
mass-market segment coupled with the benefits from the opening of
Cotai Central were the strongest elements in the second quarter,"
Jones said. "As that continues to ramp up it will continue to
drive momentum for the next couple of quarters."
Rothman says the company's strategy is to grow assets, but
"unfortunately" there aren't many new jurisdictions that are
"Sure they'd like to see places like Japan or Spain or
Thailand move forward with legalizing gambling, but there's
little movement on those fronts," she said. "It's a company
that's been a growth company for so many years that's
transitioning to a same-store, cash-flow company, and that's a
difficult transition for stocks to make."
Las Vegas Sands is the largest company in IBD's
Leisure-Gaming/Equipment industry group, which just moved up to
No. 7 among 197 groups that IBD tracks. The next largest
components areMelco Crown Entertainment (
),Wynn Resorts (
),MGM Resorts (
) andInternational Game Technology (
). Sands gets a highest-possible Composite Rating of 99 from IBD,
as do two other companies in the group:Century Casinos (CNTY)
andSHFL Entertainment (SHFL).