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Las Vegas Sands Corp. Message Board

  • mrtaxx mrtaxx May 4, 2013 8:39 AM Flag

    All Roads Lead to Macau: 5/3/2013

     

    While the battle for supremacy in Las Vegas is basically over, with MGM Resorts International and Caesar’s Entertainment dominating the Strip, the fight to win market share in Macau is still too close to call. In just 10 years the Chinese region has overtaken Las Vegas as the world’s busiest gambling mecca. The American gambling empires and their Chinese partners are currently trying to one-up each other with extravagant, multi-billion dollar resorts in the hopes of attracting the region’s billion potential gamblers. So, which companies have the inside track towards victory?

    Las Vegas Sands (NYSE: LVS)

    Sands flirted with bankruptcy five years ago, but has come back strong with the largest American footprint in Macau. The company owns four casinos in the province, including the gargantuan Sands Cotai Central facility that opened in April 2012. Sands has been a prime beneficiary of the growth in Macau gambling revenue, which was up 14% versus the prior year, according to industry estimates.

    In FY2012, Sands reported solid financial results, with annual increases in revenues and adjusted operating income of 35.3% and 25.6%, respectively, in its China operations. The company’s revenue growth benefited from the opening of its latest Macau casino, as well as a small increase in its average daily room rate. Sands has also been trying to increase its non-gambling revenue sources, with highly rated food and hospitality venues that are geared to its high-end customer base.

    Looking ahead, Sands is raising its bet on Macau, with plans underway for another multi-billion dollar facility, the Parisian, that is scheduled for completion in 2015. It is also trying to win a bigger share of the non-VIP customer base, with its invitation-only Paiza Clubs that provide exclusive restaurants, lounges, and gaming areas. With Sands’ strong base of existing Macau casinos, it will be a hard competitor to beat.

    MGM Resorts International (NYSE: MGM)

    MGM was arguably in worse shape than Sands during the financial crisis, as cost overruns at its massive CityCentre project in Las Vegas threatened to derail the company’s ambitions. The company survived, thanks in part to capital from partner Dubai World, but it continues to try to improve its overall financial profile. While MGM basically owns half of the Las Vegas Strip, it only has one casino resort in Macau, the MGM Grand Paradise.

    In FY2012, MGM reported decent financial results for its China operations, with an 8% increase in revenues and double-digit gains for both table and slot segments. Like Sands, MGM is trying to expand beyond its core wealthy, baccarat-playing customer base, with its M Life loyalty program that is geared toward the middle income segment. The company is also doubling its bet in Macau, with plans for a $2.6 billion casino on the Cotai strip next door to Sands’ newest casino. With the most diversified global portfolio of the major gambling empires, MGM has the wherewithal to meet the challenge in Macau.

    Wynn Resorts International (NASDAQ: WYNN)

    Wynn was actually one of the earliest entrants into Macau, winning one of the original three licenses, versus the sub-licenses that were subsequently bought by Sands and MGM. However, the company has only one casino in the province, which was supplemented by a later expansion project, while Sands has already put up four casinos. Like its competitors, though, Wynn is planning a new resort on the Cotai strip, a mega $4 billion project that should improve its prospects in the region.

    In FY2012, Wynn’s Chinese operations reported pretty weak results, with small declines in both revenues and adjusted operating income. Despite a solid occupancy level at its Macau resort, the company generated a below-average winning percentage at its table games and had weak performance in its non-gaming segments. In addition, the company has strategically focused its attention and marketing resources on the subset of customers that will utilize multiple revenue-generating services. While Wynn is going through some growing pains, an additional Macau casino should improve its long-term position.

    The bottom line

    Despite pockets of growth in select U.S. markets, the gambling giants have turned their collective attention to the large pool of customers and profits in China’s Macau province. While the house always wins, the companies need to watch the bottom line and avoid the construction excesses that landed them in hot water during the financial crisis. Since playing catch-up is hard to do, investors should stick with the leader and bet on Sands.


    For many companies, successfully capitalizing on a booming Chinese economy is like winning the jackpot. That's indeed the case for gaming company Las Vegas Sands, which made a big bet on Macau gaming about a decade ago that's paid off in spades. The company is now looking to spread its empire further

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    • Las Vegas Sands = JACKPOT
      For many companies, successfully capitalizing on a booming Chinese economy is like winning the jackpot. That's indeed the case for gaming company Las Vegas Sands, which made a big bet on Macau gaming about a decade ago that's paid off in spades. The company is now looking to spread its empire further

      Sentiment: Strong Buy

 
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