LVS’s 3Q12: a mixed bag

Still no power at home.  Neither hide nor hair of the local utility–which had promised full power restoration by yesterday– spotted since the storm.  Some action, though.  It took down the web page where it made its pledge.

LVS’s results

After the New York close on November 1st, LVS announced its 3Q12 results.  The company reported worldwide revenue of $2.71 billion, up 12.5% from the $2.41 billion it posted during 3Q11.  Company EBITDA (Earnings Before Interest Taxes Depreciation and Amortization), however, was down 5.1% yoy to $925.1 million.  The short story:  lower hold percentage around the world + higher allowances for doubtful accounts in Singapore.

Net income was $382.2 million, $.46 per share, vs. $444.8 million, $.55/sh, in the year-ago quarter.

LVS also announced an increase in the quarterly dividend from $.35/share to $.45, effective in 1Q13–implying a prospective dividend yield, based on pre-market prices today, of 3.9%!


strong in Macau

Sands China’s 3Q12 revenues came in at $1.64 billion, up 36.7% yoy.   EBITDA was up 24.3% at $485.6 million.  Net income, however, increased only 17.4% to $326.7 million.

The Macau market was up only in single digits during 3Q12, so there’s really nothing to complain about in the Sands China report.

The huge revenue increase comes principally from increased gambling capacity–the opening during 2Q12 of SC’s new property in Cotai.  Cotai Central produced revenue of $295.9 million in its first full quarter of operation, despite suffering from an unusually low winning percentage.  SC also benefited from a rebound from a bad-luck 3Q11 at the Venetian casino.

On the other hand, Cotai Central continues to lose small amounts of money as it slowly ramps up in the current environment of slow gambling growth in Macau.  And to some degree, it is drawing customers who would otherwise be patronizing SC’s other casinos.

My bottom line:  if–as I believe–the Macau gambling market has passed its cyclical low point and is beginning to expand again, SC is in a very strong position to benefit.

so-so in the US

Bethlehem, PA continues to perk along, posting EBITDA of $32.1 million, up 27% from the $25.2 million it recorded in the comparable period of 2011.

Las Vegas was also up somewhat, with EBITDA of $98.2 million vs. $94.3 million.  Table games play increased by 8.5% yoy, thanks to influx of baccarat players.  But those players were unusually unlucky, leaving behind $30-$25 million more than we should be counting on them to do on average.

My bottom line:  The way I look at it, Wall Street values the US operations of LVS as less than zero.  As long as the company can pay its bills and generate free cash flow–as it’s doing–the quarterly variations in EBITDA during the current prolonged slump in Las Vegas aren’t that important to the stock.

weakness in the Lion City

On the surface, gambling results from the Marina Bay Sands in Singapore look pretty ugly.  That’s mostly because the year-ago quarter was such a blockbuster.  It doesn’t help matters that Marina Bay’s winning percentage from the high roller market it caters to was a third less in 3Q12 than in 3Q11.  Less important in dollar terms, but still worthy of mention, Marina Bay increased its reserves against non-payment of gambling debts by an extra $15 million.

EBITDA for the three months was $260.8 million vs. $413.9 million during what we now know was a cyclical high point this time a year ago.  Adjusting for the abnormally low winning percentage in the higher roller business, EBITDA was flat, quarter on quarter.

My bottom line:  Singapore is a fledgling gambling market.  We have very little past experience to generalize from.  To perhaps state the obvious, the market appears to be considerably more economically sensitive than I would have imagined.  That’s a negative.  If, however, a “bad” year means generating EBITDA of $1 billion and a “good” year means EBITDA of $2 billion–which would be my best guess at present–then Singapore is still a market that casino operators should be pounding down the door to get access to.

the stock

At current market prices, LVS’s ownership interest in Sands China is worth about $24 billion.  Its holding in Marina Bay is worth $18 billion, if we assume that it would trade at a 25% PE discount to Sands China and based on average annual EBITDA of $1.5 billion.  If so, the market is still valuing the US operations of LVS at around negative $5 billion.  This is way too cheap, in my view, especially given that the Macau operations, the largest single source of value for LVS, appear to be at or near the start of a cyclical upturn.

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