Las Vegas Sands will report its Q2 2014 earnings on July 16. We expect the casino giant to benefit from the continued strength in the Macau gaming market, which sustained its impressive run in the second quarter driven by high visitation. Mainland visitors grew by 14% in the first five months of this year, according to the Macau Government Tourist Office. As a result, the region witnessed 5% year-over-year jump in gaming revenues during the second quarter. We expect Las Vegas Sands to post strong results driven by mass-market gaming growth. It must be noted that casino revenues were up for the month of April and May, but declined in June due to a diversion to gambling on the FIFA world cup.
We don’t expect any significant growth in the company’s Singapore operations. Singapore’s economy may have slowed in the second quarter given the tough comparison from prior year and a recent slowdown in manufacturing output. These factors will weigh on the region’s gaming revenues.
Las Vegas Sands Will Benefit From Gaming Growth In Macau
Macau’s casino market continued its impressive run and collected more than $11 billion in gaming revenues during the second quarter, up 5% from Q2 2013. However, the picture looked much better in April and May when the gaming revenues were up by 11% and 9% respectively. Come June, there was a pressure on VIP gaming primarily due to the rise in sports betting over the FIFA world cup. Average table revenue dropped from HK$801 to HK$775 million per day after the World Cup kicked off, representing a decline of 3.3%. Casino revenues for June dropped 3.7% amounting to $3.4 billion. While casino revenues may again fall in July amid continued betting on sports, long term market trends remain intact. We believe that post July, Macau’s casino business will go back to normal over VIP gaming. We are eager to see the mix between VIP and mass-market gaming for the month of June. It should be safe to assume that mass-market gaming would have seen high double-digit growth, while VIP gaming would have fallen in June.
We continue to believe that Macau mass-market gaming operations will drive growth for Las Vegas Sands in the near term as well as in the long run. The company will benefit from its diverse properties in the region, primarily Cotai, which has been growing rapidly and has captured some of the mass-market and VIP gaming share of the peninsula. The company’s Cotai property, Sands Cotai Central appears to have a potential of much more than $1 billion in annual EBITDA. With more than 200 mass-market tables to offer, SCC in Cotai, is becoming a hot property in Macau and the arrival of The Parisian in 2015 will add to its offerings in the region.
Singapore’s Economy May Have Weakened
Las Vegas Sands’ business operations consist of leisure and entertainment activities, and can be linked to the state of the economy, tourism and consumer spending. Singapore’s economy may have weakened in the second quarter due to a tough comparison from last year when the GDP expanded 15.5% on a quarter-on-quarter, seasonally adjusted and annualized rate. Moreover, the manufacturing output declined by 2.5% in May 2014, which further supports our expectation.
There are many tourists who come to Singapore from other Southeast Asian countries for gaming activities. While the data for visitors in the second quarter is not available yet, the international visitation declined by 0.2% during the first four months of 2014, according to the data released by Singapore Tourism Board. Singapore is the second biggest market for Las Vegas Sands after Macau, and constitutes roughly 20% of it’s value according to our estimates. During Q1 2014, the company saw 6% jump in Singapore revenues and 10% growth in EBITDA primarily due to higher rolling chip win percentage, which increased 0.9 points to 3.41%. It must be noted that rolling chip win percentage in Q2 2013 was much lower at 2.62%. A growth in win percentage can boost the company’s Singapore EBITDA in the second quarter.
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Earnings Preview: Mass Market Gaming Will Drive Growth For Las Vegas Sands ...