the report

After yesterday’s close, LVS reported 1Q13 earnings results.  Revenues came in at a record $3.3 billion, up 19.5% year-on-year.  Earnings per share were $.71, up a penny from the 1Q12 EPS, but $.04 higher than the Wall Street analysts’ consensus.

The results are actually much stronger than the raw numbers would suggest.  As regular readers will already know, casinos count as revenue only the amount that patrons lose when they gamble, not the amount they bet.  Over long periods of time, gamblers losses adhere to highly predictable patterns.  Over short periods, however, they can fluctuate a lot from the “house advantage,” based mostly on random “luck” factors.  To get a clear picture of how a casino company is doing, we have to adjust for this.

In LVS’s case, luck made 1Q12 revenue (and operating profit) look $177 million better than it should have; luck made 1Q13 revenue look $25 million worse.  Adjusted for these differences, income for LVS was up by about 30%.

why so good?

Macau

–Chinese gamblers elected to keep low profiles during the recently completed leadership change in Beijing.  Now they’re returning to the baccarat tables in Macau.

–better transportation and streamlined border controls mean more visitors can easily reach Macau

–unlike, say, WYNN, LVS has ample spare capacity to accommodate new customers, so it’s benefiting disproportionately from the market upturn.

Singapore

–mainland Chinese gamblers, whose patronage of the Marina Bay Sands has been more highly economically sensitive than their visits to Macau, are coming back

–so too, gamblers from Indonesia

US

–Las Vegas was flattish, with strength in non-casino operations

–Bethlehem, PA continues to perk along

Asian retail mall operations

In response to an analyst question about why LVS had not yet sold any of its Macau or Singapore retail operations as previously planned, management said the businesses were still growing much more quickly than anticipated.  The company thinks the Asian malls may ultimately be worth $8 billion – $10 billion, or around 20% of the company’s market cap.

For the first time, LVS is providing segment detail about these operations.   1Q13 operating profits were $68 million, up 23.4% yoy.

a special dividend?

Management also said it’s considering borrowing in the US, à la AAPL, to fund either a special dividend or a share buyback.

my take

LVS isn’t wart-free. It’s involved in a number of lawsuits.  And its long-time auditor has just parted ways.  Still, by my calculations, the Asian operations explain more than the entire market cap of LVS.  I don’t think either Hong Kong or Wall Street has appreciated the potential of the Asian retail malls.  LVS is the only way to get exposure to Marina Bay Sands and the easiest way to participate in Sands China.  I’m not in a great rush to buy more today but I’m very happy to hold.