Tag Archives: Sands China

the Macau gambling market contracted by 3.7% in June!

July 3, 2014 By in Asian economic development, Casinos, China, Entertainment, Hong Kong, Macau Tags: , , , , , , , , , Leave a comment

The recently released monthly report from Macau’s Gambling Information and Coordination Bureau (DICJ) showed that aggregate casino win (the amount gamblers lost in the casinos last month) amounted to MOP 27.2 billion, or about US$3.4 billion.  That’s a 3.7% year-on-year drop, the first red figure I can remember for the SAR, and the only one on the DICJ website, which contains comparisons going back to 2010.

Yes, the figures might have been slightly in the black if not for the World Cup keeping potential gamblers glued to their TV sets at home rather than being at the casino tables.  And it has been clear that the yoy comparisons would get progressively tougher as 2014 unfolded.  That’s because 2013 results got stronger as the VIP market returned to normal after the mainland Chinese Communist Party leadership transition.

There are two more important reasons for the flattening out of the Macau gambling market, however.  Both are temporary, I think.

–the continuing anti-corruption crackdown by Beijing, which has VIP gamblers adopting a lower profile, and

–lack of junket operator credit (junket operators typically borrow, at rates of 1%+ per month, funds that they advance to VIPs), in the wake of the apparent disappearance of a prominent organizer with US$1 billion – US$1.3 billion of his company’s funds.  This has understandably made lenders reluctant to back any junket operator as fully as before.

Interestingly, the Macau gambling stocks, which have been very weak performers since early this year, rallied on the DICJ report.

What to do?

My guess is that the VIP segment of the Macau market will be at best flat for the rest of the year. That will make it hard for the aggregate gambling market in the SAR to show significant advances.  However, the real story of Macau is below the surface.  It’s the rapid shift away from VIPs and toward the mass affluent that’s now going on.  The latter, which already account for the bulk of the SAR’s win, are also big spenders in the casinos’ food, entertainment and shopping venues (remember, non-gambling activities can account for half a casino’s income, and they’re just getting started in Macau).

The Hong Kong-traded casino stocks, which have been very weak performers since early in the year, seem to me to have already discounted the negative developments I’ve described above.

In my view, the worst hurt by the VIP slowdown will be the traditional casinos run by the Ho family.  The least affected will be Sands China, Wynn Macau and Galaxy Entertainment (I own Galaxy and the parents of the two others).

I’m not rushing to add to my exposure (although I think I may have missed the bottom in Wynn Macau a couple of weeks ago), but i have no desire to sell, either.

 

 

Las Vegas Sands (LVS): a revealing 4Q13 earnings report

February 4, 2014 By in Casinos, earnings conference calls, Entertainment, Hong Kong, Macau, Stock ideas Tags: , , , , , Leave a comment

the results

Last week LVS reported 4Q and full-year 2013 results.

The quarter was another very good one.  Revenue (remember, this basically means the amount won from gambling customers) was up 18.8%.  EBITDA (earnings before interest, taxes, depreciation and amortization), smoothed to eliminate the effects of good/bad luck, were up by 25.8%.   Macau was up 55.8%–meaning it was the whole growth story.  EPS, on the same adjusted basis, were up by 35.9% at $.87.

For the full year, the company made $2.90 a share in earnings, and paid out $2.00 a share in dividends.

a tale of three countries

I think for an investor it’s more imformative to look at full-year results than just 4Q13.  It’s easier to see the overall economic underpinnings of LVS this way.

LVS had adjusted EBITDA of $4.767 billion last year.  That breaks out as follows:

1.  the US = flattish, at less than 10% of the total

The US had EBITDA of $475 million in 2013.  That’s up by $30 million, or 6.7% the year prior.  Of the total, about 30% comes from royalties paid to the parent by Asian gaming operations ( to be honest, I’ve never followed up on this detail like I would if I were still working).  The rest is split about 3/4 for Las Vegas and 1/4 for Pennsylvania.

Las Vegas is still suffering from the massive overcapacity created by the major casino operators MGM, LVS and WYNN just as the economy was cresting in 2007.  In addition, revenue-hungry states are continuing to create new gambling capacity within their own borders, the latest being Massachusetts.

So flattish is my best guess for the next few years.

2.  Singapore = flattish at just about 30% of the total

The Marina Bay Sands had hold-adjusted EBITDA of $1.385 billion in 2013, up from $1,366 billion in 2012.

For the first time–or maybe the first time I’m aware of–LVS has stated (more or less) clearly its assessment of its Singapore operations.  The evaluation?  …the operation is mature.  It has been government policy in Singapore from the beginning to discourage local citizens from frequenting either of the casino operations in the island state.  So growth there is out.  Its high background check standards–again, no surprise–mean many VIP junket operators are barred from doing business there.  So any high roller growth will come slowly and be the result of hard work.

So Marina Bay has turned into a $1.5 billion yearly annuity.  Not the outcome one might have hoped for a few years ago from LVS’s huge investment, but not a bad result either.

Note:  Marina Bay has also had an unusually long streak of bad luck, during which the amount actually lost by high rollers has consistently fallen shy of what historical experience would lead one to expect.  (translation:  the actual results have been below the hold-adjusted amount).

3.  Macau = 60%+ of the total–and rising

Macau’s EBITDA in 2013 was $2.907 billion, up 45.6% from the prior year.

Yes, the year-on-year comparison is flattered by relative weakness in Macau during the leadership transition in Beijing two years ago.  So Sands China won’t be up by 50% again in 2014.

More important, mass market gambling–which is the sweet spot for LVS–is just beginning to emerge in Macau (more about this tomorrow).  LVS has the experience and the hotel/casino capacity to take advantage of this new trend.  In what will likely be a 15% growth year in revenue for the Macau market in the aggregate, I think Sands China has a reasonable shot at being up by 20% in–and by a considerably higher percentage in EBITDA.

the stock?

First, I should mention that until recently I’ve been selling bits and pieces of my casino stock holdings (WYNN, LVS, Galaxy) because of position size.  Because of this, I don’t feel any urgent desire to add more.

If I owned none?  I’d be torn between Galaxy and LVS (assuming, as I do, that LVS has created conditions where US citizens can’t buy Sands China–company representatives I’ve spoken with appear to be clueless).  

At 20x forward earnings and a dividend yield of 2.7%, LVS strikes me as appropriately valued today–not cheap, but not that expensive if my view on Macau proves correct.  Personally, I’d be waiting to see how the correction we’re in develops, for the chance of buying the stock, say, 10% cheaper than now.  

Macau gambling, October 2013

November 8, 2013 By in Asian economic development, Casinos, China, economics, Entertainment, Hong Kong, Industry Analysis, Macau, Stock ideas Tags: , , , , , , , , , , , Leave a comment

The Macau Gaming Inspection and Coordination Bureau (DICJ) recently released its tally of aggregate gambling winnings of the Chinese SAR’s casinos during the holiday month of October.  The results, in MOP millions, are as follows:

Monthly Gross Revenue from Games of Fortune in 2013 and 2012
Monthly Gross Revenue Accumulated Gross Revenue
2013 2012 Variance 2013 2012 Variance
Jan 26,864 25,040 +7.3% 26,864 25,040 +7.3%
Feb 27,084 24,286 +11.5% 53,948 49,325 +9.4%
Mar 31,336 24,989 +25.4% 85,284 74,314 +14.8%
Apr 28,305 25,003 +13.2% 113,589 99,317 +14.4%
May 29,589 26,078 +13.5% 143,178 125,395 +14.2%
Jun 28,269 23,334 +21.1% 171,447 148,729 +15.3%
Jul 29,485 24,579 +20.0% 200,932 173,308 +15.9%
Aug 30,737 26,136 +17.6% 231,670 199,444 +16.2%
Sept 28,963 23,866 +21.4% 260,632 223,310 +16.7%
Oct 36,477 27,700 +31.7% 297,109 251,011 +18.4%

Source: Macau DICJ.

 

The monthly “win” is an all-time record for Macau, and, in my view, stunningly good.

Two factors appear to be at work:

–the expansion of casino capacity and the parallel development of non-gambling entertainment (at the insistence of the Macau government) in the Cotai region is broadening the appeal of Macau as a tourist destination and drawing in a younger, “merely” affluent crowd in large numbers, and

–the upturn in the Chinese economy is prompting the return of increasing numbers of the enormously wealthy VIP baccarat players who have until now formed the backbone of Macau’s casino industry.

 

What I find interesting is that the Hong Kong-traded Macau casino stocks have been selling off on this good news.  This is partly, I think, because the stocks have been extremely good performers over the first three quarters of the year, as it became clearer that the Chinese economy was beginning to rebound.  The fact that more speculative and less skillful operators in the Macau market have been leading the pack had already been suggesting that the recent run was getting a bit long in the tooth.  In addition, however, I think the pullback we are seeing also is in line with an emerging mood of caution I see building in stock markets around the world.

I don’t think anything is wrong, either with Macau gambling or with the strongest operators.  A while ago, I trimmed my casino holdings a bit, based solely on position size.  Others may be doing the same, only timing their move a bit better than I did.  I expect that as Macau continues to exhibit strong growth in gambling win over the coming months, the stocks will take up their outperforming ways again, with Galaxy Entertainment, Sands China and possibly Wynn Macau in the vanguard.

Las Vegas Sands (LVS) and Sands China (HK: 1928): 3Q13 earnings

October 18, 2013 By in Casinos, China, earnings conference calls, Entertainment, Hong Kong, Industry Analysis, Macau, Stock ideas Tags: , , , , , , Leave a comment

the results

After the New York close yesterday, LVS announced 3Q13 results for itself and for its subsidiaries, Macau-based 1928 and wholly owned Marina Sands of Singapore.

Revenues for LVS came in at $3.57 billion, up 31.7% year on year.  EBITDA (earnings before interest, taxes, depreciation and amortization)  advanced by 45.5% yoy to $1.28 billion.  EPS was $.82, a 78.3% yoy increase.  That figure exceeded the Wall Street consensus by $.05.

During the quarter, LVS repurchased 4.6 million shares of its stock, at an average price of $65.18.  It says it will buy back a minimum of $75 million in stock a month from now on.

LVS also raised its quarterly dividend from $.35/share to $.50, giving a forward yield of 2.8%.

 

1928 rose by almost 10% in overnight trading in Hong Kong (in a market where other Macau casino stocks were up by 4%-5% or so).  LVS has barely budged in this morning’s pre-market trading.

 

the highlights

Macau

LVS is a convention hotel operator.  Its strength is catering to customers who have, say, $10,000 to gamble during a stay rather than VIPs with $1 million or more.  Its huge investment in hotel/casino capacity in the Cotai section of Macau on the conviction that if Sands built it, customers would come, is beginning to pay off royally now.

EBITDA for 1928 came in at $785.3 million for the quarter, up 61.7% yoy.

Singapore

Marina Bay’s EBITDA was $373.6 million, up 43.3% yoy.  However, the amount bet by VIP gamblers was only up by 16.9%.  The largest portion of the EBITDA increase comes from the casino “win” (the amount gamblers lose, which is what casinos count as revenue) bouncing back from an abnormally low 1.79% of the amount bet during 3Q12 to a more normal 2.85%.

US

Down a bit, yoy.  EBITDA in Las Vegas was $87.1 million (vs. $98.2 million during 3Q12).  Bethlehem, Pa brought in $29.6 million (vs. $32.1 million).

my take

At this point, over 90% of LVS’s EBITDA comes from Asia.  That percentage will continue to climb.

Marina Bay is an enigma to me.  …a good enigma, but a puzzle nonetheless.  It isn’t that long ago that Marina Bay and Macau were neck-and-neck in generation of cash for LVS.  But while Singapore has been relatively stagnant, LVS’s Macau EBITDA have doubled.  Has Marina Bay already topped out at $1.5 billion in annual EBITDA?  I find it hard to think this is the case, but I can’t see any evidence to the contrary from the financials.

Macau is booming   …and the market is rapidly developing a large resort/convention segment, which is LVS’s management specialty.

valuation

At today’s Hong Kong closing quote, LVS’s interest in Sands China is worth $49 billion.

If we make the (conservative, in my view) assumption that Marina Bay will generate about $1.5 billion in annual cash flow and that we’re willing to pay 10x for that, then the Singapore subsidiary is worth $15 billion.

The same calculation for the US operations (let’s put a cash flow multiple of 8 on it) would value it at about $4 billion.

Total value = $68 billion.  That compares with a total market cap for LVS at yesterday’s close of $58.5 billion.

If these back of the envelope figures are close to correct, LVS is trading at about a 15% discount to the sum of its parts.  Further upside could come from continuing flowering of the Macau operations, which I think is highly likely, and/or a return to growth for Marina Bay.  (I own the stock and am happy to remain a holder.  At some point, I’ll have to trim the position simply because of size, but see no present reason to do any other selling.)

 

 

Macau casinos, August 2013

September 5, 2013 By in Asian economic development, Casinos, China, Entertainment, Hong Kong, Industry Analysis, Macau Tags: , , , , , , , , , , , , Leave a comment

Over the Labor Day weekend, the Macau Gaming Inspection and coordination Bureau (DICJ) released its monthly report on the aggregate amount won by the casinos in the SAR during the month.  Here are the figures:

* 1 HKD = 1.03MOP (Unit:MOP million )
Monthly Gross Revenue Accumulated Gross Revenue
2013 2012 Variance 2013 2012 Variance
Jan 26,864 25,040 +7.3% 26,864 25,040 +7.3%
Feb 27,084 24,286 +11.5% 53,948 49,325 +9.4%
Mar 31,336 24,989 +25.4% 85,284 74,314 +14.8%
Apr 28,305 25,003 +13.2% 113,589 99,317 +14.4%
May 29,589 26,078 +13.5% 143,178 125,395 +14.2%
Jun 28,269 23,334 +21.1% 171,447 148,729 +15.3%
Jul 29,485 24,579 +20.0% 200,932 173,308 +15.9%
Aug 30,737 26,136 +17.6% 231,670 199,444 +16.2%

Source: Macau DICJ

The figures are obviously good.  the MOP 30.7 billion achieved in August surpasses all but the win from last March, a holiday month.  They’re 4% better than the results for July.  They’re also up 17.6% year on year.  August of last year may have been negatively affected both by weather and by high rollers beginning to pull in their horns as the anti- conspicuous consumption attitude of the new Communist Party leadership began to make itself known.

What’s most interesting–and encouraging–are company comments that VIP gamblers are beginning to return in higher numbers to Macau as they feel more comfortable about what the Party’s anti-corruption stance and dislike of lavish displays of wealth actually means for them.  Apparently, gambling, in itself, isn’t a bad thing.  In addition, the tide of merely affluent gamblers–who might gamble US$10,000 on a visit, rather than US$1 million–is continuing to rise strongly.

The real shortage element at present is casino and hotel capacity to receive customers.  The biggest beneficiaries of market growth are those who are opening new space in Cotai.  To my mind, this means Galaxy Entertainment and Sands China (I own shares of  Galaxy and of Sands China’s parent, Las Vegas Sands.  (Both Fidelity and Schwab maintain Americans aren’t permitted to buy Sands China in Hong Kong and refuse to transact in the name.   I’ve asked LVS several times for an explanation–their investor relations people are clueless, however.  I find that disturbing for a big company, but not to the degree that I want to sell LVS.)

One’s instinct in any attractive market is to look for laggards–companies that may not be the best-positioned, but which are significantly cheaper than the leaders.  Buy them, wait for a run and trade into the leaders, the strategy goes.  In theory this sounds good.  And Hong Kongers have no trouble executing it among the Macau gambling stocks.  As for me, some of the laggards are controlled by people I don’t trust.  So I’d rather stick with the names I have (I also own Wynn Macau and WYNN).