Las Vegas Sands Doing Better in Macau Despite Collapsing Volume

TAGs: Editorial, Las Vegas Sands, Macau, Rafi Farber

Las Vegas Sands Doing Better in Macau Despite Collapsing VolumeThe decline in Macau may not be over yet, but Las Vegas Sands is handling it better than the market currently perceives. Earnings were a bitter disappointment and the stock is down 13% since the release. There are significant positives from this earnings release though that bode well for the future, at least withregard to LVS. That is, the casino is gaining efficiency since having been tried by the Macau collapse. This might not be visible from the overall income statement because operating expenses were higher as a percentage of revenue than last year’s first quarter. Look deeper though and you’ll find that’s not because of Macau. Besides, it could have been much worse considering the collapse in gaming volume.

Here’s a breakdown of the major Macau properties and you’ll see what I mean.

Venetian Macau

Counting rolling chip and non-rolling chip volume and slot handle, total gaming volume was down 3.3%. Hotel occupancy was also down 8pts, and the revenue per available room down 24%. Across the board, less people are coming and less money is being staked year over year. The absolute loss in gaming volume or money staked was $382.4M. Nevertheless, despite all that, operating income was still up 1.8%.

Sands Cotai Central

Sands Cotai has taken the worst beating in terms of volume from the dried up VIP sector. Taking all gaming volume into account there were across-the-board declines of 29%, with occupancy down 4.4pts and revenue per available room down 15.6%. In total, Sands Cotai Central saw an absolute loss of a staggering $2.7B in money staked. Nevertheless, operating income was still up 12%! To pull off something like that given collapsing volume is more than a little impressive.

Four Seasons Hotel Macau

The Four Seasons has also taken a severe volume hit from the VIP sector. Total gaming volume was down 30.4% from Q1 2015. Hotel occupancy was down 8pts, revenue per available room down 22%. Another huge absolute loss of $1.31B in gaming volume, but still operating income was up 15.4%.

Sands Macau

Sands Macau was the only Macau property to post a decrease in operating income, but the absolute difference of $22.9M is not that big of a deal. Total gaming volume at Sands Macau was down 10.6%. Hotel occupancy was down 2.6pts, and revenue per available room down 10.8%. The property saw an absolute loss of $139M in gaming volume, and a drop in operating income of 51%. Sands Macau is the outlier here.

Marina Bay Sands – The Fly in the Ointment

Singapore can be blamed for the overall drop in efficiency for LVS this quarter. Total gaming volume was also down 2.1% at Marina Bay Sands, for an absolute difference of $289M. Hotel occupancy was up 3.1pts and revenue per available room down only 1.8%. So how was the quarter so bad for Marina Bay Sands? Rolling chip win percentage was only 1.42%, compared with 3.41% in Q1 2015. That’s a drop of 58%, meaning win percentage was less than half of what it should have been. Was there cheating going on there somehow? A little Ocean’s 13 action happening in Singapore? Who knows, but if it happens again then something bad is going on. The absolute loss in operating income was $133M.

That may not sound like much but the absolute difference in operating income for all of LVS this quarter was only $125.5M! If Marina Bay Sands had achieved the same rolling chip win percentage as it did in Q1 2015, that would have added $192M to its bottom line, erasing the drop for the casino as a whole and actually making it more efficient rather than less.

The bottom line then is that Las Vegas Sands’ Macau business has not picked up at all. But that’s OK, because it has learned to deal with dropping volumes by increasing efficiency significantly. Cost-cutting was a major topic of discussion at the recent conference call. CEO Sheldon Adelson confirmed $250M in total cost cutting for 2015. The Parisian Macau is set to open in September, and even though analysts are all worried about the supply and demand problem, the fact is that LVS is still profitable at all of its casinos, so adding another one, while it will cannibalize for sure, it will still add to the bottom line. Macau may be bad, but it’s not a nuclear war zone. Many people still gamble there, believe it or not, and casinos can still make money.

For shareholders, dividends increased to 72 cents a share for a current yield of 6.3%. That’s a very good deal for such a large company.

It’s very close to being a buy then, because I doubt that LVS will allow whatever it was that happened in Singapore to happen again. Before adding it to the model portfolio though, we should wait and see how Wynn and Melco Crown did this past quarter and compare their efficiency to LVS. Melco will be reporting early next month, and Wynn around the same time. They will probably show declining Macau volumes as well, but if they’re not adjusting as well as LVS in terms of cost-cutting, then it may be time to finally buy a Macau stock.


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