4Q12 for Las Vegas Sands (LVS): Asian good times are back

the report

After the New York close yesterday, LVS reported its 4Q12 earnings results.  The company reported profits of $434.8 million, or $.54 a share, on revenues of $3.06 billion.  EBITDA (earnings before interest, taxes, depreciation and amortization–a measure of operating profits) was $1.002 billion.

Revenues were up 20% year on year, net income up 35%.

As regular readers know, casino company financials are unusual in that what counts as revenue for gambling companies is not the amount bet by customers but rather the portion of that amount that the casino retains or “holds”–that is to say, the amount that customers lose.  The amount bet, which appears nowhere on the income statement (but is normally somewhere in the company press release), is, in my experience, a relatively stable and pretictable function of customers’ income and casino floor space.  The “hold,” on the other hand, is also a function of luck, which can vary considerably over short periods of time.  The first thing an analyst will do in looking at casino earnings is to correct them for these luck variations.

As for LVS, the company was unusually lucky in Macau during 4Q12, but unlucky everywhere else.  Overall, EPS would have been $.63 if the company had had average luck throughout its operations.  That compares with the Wall Street consensus, which I’ve always read as being luck neutral, of $.59.

LVS has also raised its quarterly per share dividend from $.25 to $.35, starting with the March 2013 payout.

As I’m writing this, the stock is up by about 5% in after hours trading.

the details


Sands China generated EBITDA of $622.2 million during the quarter, up 44% year on year.  Subtracting out unusually good luck, EBITDA was $575.4 million, up 32.5% vs. 4Q11.

LVS’s aggressive expansion in developing the Cotai area appears to be paying off.  Because it has developed extra capacity, it stands to benefit disproportionately as both economic recovery on the mainland and better transportation links deliver increasing numbers of visitors to Macau.

Perhaps more important, LVS announced it has been granted permission by the Macau government to add 200 new tables to its casinos, a strong sign that the SAR approves of the way Sands China is doing business.


After having hold-adjusted EBITDA stall, with a slight downward bias, for the last year at around $380 million, Marina Bay posted 4Q12 EBITDA of $406.4 million, up 6.8% yoy and 9.1% qoq.  Although this market is so new it’s impossible to interpret the figures with any confidence, the fact that EBITDA is moving up again is encouraging.

the US

Flattish EBITDA, which is all investors should want.  Hold-adjusted, Las Vegas was down by $8.1 million at $87.9 million.  Bethlehem was up $3.0 million at $25.6 million.

asset value

LVS has a market cap, at the aftermarket quote, of about $45 billion.  It’s ownership of Hong Kong-traded Sands China is worth $29 billion.  If we applied the same valuation to 100%-owned Marina Bay Sands, it would be worth about the same.  But Singapore doesn’t appear to have the explosive growth potential of Macau, at least as things stand now.  Remember, though, this time a year ago there seemed to be no limit to the upward trajectory of Marina Bay’s EBITDA, so we’ve got to keep an open mind.  Trying to be conservative, let’s say that current Singapore earnings are worth a multiple of .6x what Macau’s are.  That would give Marina Bay Sands an asset value of about $17 billion.

Together, the Asian properties explain the entire market value of LVS.

Over the next year, what might we reasonably expect from Asia?  Sands China could be trading at a price 20% higher than it is now, based on Macau market growth and increased Sands China market share.  Revival of the apparently more business cycle-sensitive Singapore gambling market might produce 10%-15% EBITDA growth and a mild expansion of the relative multiple.  If so, even if the market continues to value the US operations of LVS at the current zero, we should expect a substantially higher share price for LVS.


Full-year earnings for LVS in 2012 were $2.14/share.  To me, it seems reasonable to expect $2.50 in 2013–meaning LVS is currently trading on a forward earnings multiple of 22x.  Yes, that’s high, but it’s no longer in the stratosphere.  The stock also yields 2.6%.

Therefore, even on a conventional PE basis, which I don’t think is the right way to value the stock, LVS doesn’t look bad.



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.

Las Vegas Sands: strong 4Q11…and beyond


LVS reported 4Q11 and full-year 2011 results after the close of New York trading on Thursday February 1st.  Quarterly revenue for the company was $2.3 billion, up 26.3% year on year.  Net income was $460.9 million, or $.57 a share.  That was up 38% year on year.  EPS exceeded the average analyst estimate by about $.03.

For 2011 as a whole, LVS posted $9.4 billion in revenue, up by 37% from the %6.9 billion taken in in 2010.  EPS more than doubled to $2.02 vs. $.98 in the prior year.


Sands China in Macau took in $1.33 billion in revenue during 4Q11.  Ebitda (earnings before interest, taxes, depreciation and amortization) was $430.1 million.  These figures were up 22% and 29% year on year, respectively.  3Q11 ebitda was $388.3 million, meaning 4Q results were up 10.7% qonq.

Marina Sands in Singapore had revenues of $806.9 million for the quarter and ebitda of $426.9 million, aided by an unusually high win percentage at table games.  These were yoy increases of 44% and 40%.  3Q11 ebida was $413.9 million, so the qonq gain was 3%.

Las Vegas operations had revenues of $339.5 million and ebitda of $80.9 million.  Revenue was up 9% yoy, ebitda was about flat.  3Q11 ebitda was $94.3 million.  Qonq, 4Q ebitda was down 16%.

my thoughts


Let’s assume US operations will be flat year on year in 2012, ex management fees from Singapore and Macau.  I think there will be some small gains, but the main issue is not the economy.  It’s the severe overcapcacity of hotel rooms and gambling space in Las Vegas.  Dividends from Sands China will probably add close to $1 billion–covering the parent’s dividend payout.

HK: 1928 will soon be opening the first phase of its newest Macau casino, Macau Cotai Central, shortly.  In a market that will likely expand by 25% this year, 1928 will likely easily grow by 30%–probably considerably more.

I don’t know any good way to estimate growth for the MS Singapore.  The casino hasn’t been open that long, for one thing.  For another, after posting continuous increases in ebitda since opening, income seems to have flattened out in 4Q11.  Is this seasonal?  …or something else?   No one knows.  If we assume no organic growth but that the casino continues to generate revenue at the 4Q11 rate throughout 2012, ebitda would grow by 15% yoy.

Repayment and restructuring of debt at lower interest rates will chip in, as well.

Put all this together and I think the analysts’ consensus of $2.50 in eps for this year is a reasonable guess.  We’ll be able to tell more when the official year-end financials are published.

asset value

At today’s level, the market value of LVS is about $38 billion.

Its ownership interest in publicly traded Sands China (1928:HK) is worth around $21 billion.

If we assume that wholly-owned Marina Sands should be valued at 80% of 1928’s ebitda multiple–because of less clear near-term growth prospects–then MS is worth $24 billion.

If so, Macau and Singapore are together worth $7 billion more than the market cap of LVS–implying that, in the mind of Wall Street, the $424 million in annual US ebitda subtracts a ton of value.  That’s silly.  LVS would need to rise above $60 a share in order for the stock price to reflect no value for the US operations.


Both LVS and 1928 have declared initial dividends and signaled their intention to sustain them at at least the current level.  LVS will be paying $1 a share annually, meaning a yield of slightly below 2%.  1928 will be paying HK$1.16, a 4% yield.

Three implications:

–dividends are supposed to be paid from profits.  Both LVS and 1928 are saying they expect to remain at least as profitable as they are now.

–both companies believe they’ll be generating enough free cash flow to sustain the payout

–the companies’ lenders (LVS has about $10 billion in debt) are satisfied that they’ll be repaid and have okayed the dividends.


LVS  isn’t the best casino operator in the world.  That’s WYNN, in my opinion.  But at the moment I think it’s the best casino stock.

Management is highly competent.  And the company is nearing the end of a very ambitious (read: risky) multi-year, multi-billion dollar Asian expansion.  The financial crisis came at the worst possible time for LVS.  Nevertheless, the company has completed its plans.  It’s now entering a period of potentially immense free cash flow generation that will transform the financial structure of the firm over the next two or three years.  I don’t think Wall Street has worked this out yet, as shown by the undervaluation of LVS on a sum-of-the-parts basis.

LVS’s 3Q11: very strong, across the board

the report

After the close of New York trading on October 27th, LVS reported 3Q11 results.  Revenue was a record $2.41 billion, up 26% year on year.  Property EBITDA (earnings before interest, taxes and depreciation and amortization) was up 43.2% to $924.1 million.  EPS were $.55, a 61.8% boost over earnings in 3Q10.  The Wall Street consensus eps estimate was $.52.

LVS shares are up by about 4% in aftermarket trading as I’m writing this.

the details

In what follows, it’s important to remember that what a casino company reports as gambling revenue is not the total amount of money bet, but rather the portion of the money bet that it retains or “wins.”  Over a long period of time, the casino’s winning percentage is relatively steady.  In any given quarter, however, it can move away substantially from the long-run average.  In analyzing quarterly results, we should note any short-term deviations and at least mentally adjust for them.


Year on year comparisons for the Marina Bay Sands aren’t that helpful, because the casino/resort complex is so new. I’m using quarter on quarter comparisons, instead.

Gambling activity continues to grow rapidly.  EBITDA, which was $413.9 million for 3Q11 vs. $405.4 million in 2Q11 doesn’t show this clearly, though.  That’s because the high roller winning percentage at Marina Bay was 2.99% in 2Q11 and 2.69% in 3Q11 (LVS thinks the normal range for quarterly win in the VIP segment, by far the casino’s largest, should be 2.8%-3.0%).  The q-on-q decline in winning percentage clipped about $35 million from 3Q EBITDA.  The real quarter on quarter growth rate is 10%+, not the 2%+ the accounts show.

VIPs bet an eye-popping $16.7 billion at Marina Bay during 3Q11.  This compares with $12.2 billion in 2Q11 and $10.2 billion in 3Q10–both breathtaking numbers in their own right.


Same story here.  EBITDA in 3Q11 was $388.3 million, down $3.3 million compared with 2Q11–at a time when market growth, quarter on quarter, was about 10%.  Adjusting Sands China’s winning percentage up to 2Q11 level adds $40 million to the EBITDA line.  This suggests that Sands China held its own in a growing market, despite not adding any casino space this year.

Sands China’s newest, 13.7 million square foot casino in Cotai is slated to open in five months.

I’m going to ignore Bethlehem, PA because it’s so small (EBITDA of $25.2 million in the quarter).

EBITDA in Las Vegas was $94.3 million for the seasonally weak 3Q, up slightly from $92.9 million in 2Q11 but up sharply from $58.3 million in 3Q10.   About $10 million of the increase on a year over year basis is due to higher royalty income from Macau and Singapore.  Most of the rest is a halving in the level of giveaways from the $40 million or so LVS needed last year to get customers to come to its Las Vegas properties.


In short, LVS is holding its own in the US and is making money hand over fist in Macau and Singapore.

valuation remains compelling, in my view

(Remember, I own LVS, WYNN and 1128 (if it weren’t for a software glitch Fidelity can’t find/fix, I’d own 1928, too)).

Look first at WYNN, which I consider to have the strongest gambling company management.  Its interest in 1128 is worth about $11.5 billion at today’s market price.  Therefore, the market is valuing the US interests of WYNN at about $5.5 billion.

Next, MGM, the weakest of the big firms.  Its interest in MGM China is worth $3 billion, implying its other interests, including its entanglement with Pansy Ho, are worth $2.7 billion.

What about LVS?  The market in Hong Kong values its interest in 1928 at $17 billion.  Arguably, Marina Bay should be valued at a premium to Sands China.  But capitalizing its earnings on the same basis as 1928 yields a value for the 100%-owned Singapore subsidiary of $25 billion.  This would mean the market values the rest of LVS–Las Vegas and Pennsylvania–at minus $9 billion.  LVS shares would have to be almost 30% higher just to get the needle out of the minus column.

is there a reason for the apparent undervaluation?

A friend who’s a regular reader of PSI asked about ongoing litigation involving LVS, based on a Wall Street Journal article a week or so ago.  I’ll write about this on Sunday.

The litigation may well be a serious issue.  I don’t know.  On the other hand, the stock price already seems to me to be discounting a very unfavorable outcome.

Also, arguably LVS’s leading position in two major Asian markets and its tourist/convention emphasis make it attractive to other countries interested in creating a tourism/gaming industry.  Both WYNN and LVS are seeing synergy effects in Las Vegas from their Asian exposure;  LVS is seeing this in Singapore.  One might therefore expect LVS to be trading at a premium to its competitors, not a steep discount.

why is Las Vegas Sands eyeing Spain?

the news on Spain…

I was very surprised when I read a newspaper article last week trumpeting LVS’s negotiations with the Spanish government to open a $13 billion-$20 billion casino resort project in that country.  After all, it wasn’t so long ago (late 2008) that LVS was:

–cutting back on expansion (the steel skeleton of the aborted Palazzo expansion still graces the Las Vegas Strip),

–cautioning that the company could be in violation of its debt covenants, and

–the Adelson family was injecting $1 billion of its own money into the company to help reduce its leverage.

…comes from Singapore

The report seems to have been based on a briefing by LVS of reporters in Singapore, although the company has issued no press release I can find, nor has it filed a statement of its plans, which may include casinos in Madrid and/or Barcelona, with the SEC.  LVS is apparently far enough along with that project to be meeting with contractors in Spain in a couple of weeks.

a rosy present

Of course, the situation for LVS is a lot better today than it was back then.  Las Vegas has turned cash flow positive (although it’s still losing money).  More important,  Macau generated ebitda (earnings before interest taxes depreciation and amortization) of $341 million in the fourth quarter.  And the recently opened Marina Bay Sands in Singapore produced ebitda of $306 million during the same period, even though the resort complex isn’t quite finished.  Business in both Asian regions is growing, with LVS thinking the Marina Bay might generate ebitda of $2 billion in 2011. (I’m pencilling in $1.5 billion for Macau.)

Spain makes some sense

In addition, the Spain idea may not be as far-fetched as it sounds at first.  How so?

Making the very crude (but probably still accurate enough) assumption that depreciation and amortization (an addition to cash flow) and interest expense (an outflow of money) cancel each other out, Macau + Singapore could together generate $3.5 billion in cash, before taxes, this year.  Presumably 2012 would be stronger, at the very least because the Marina Sands will have been completed. But business there is also continuing to grow so rapidly that LVS is worried about running out of hotel rooms.

We’ll have a much better sense of LVS’s financial obligations and its debt repayment schedule when the 2010 10-K comes out, but my numbers are at least directionally correct.  They illustrate three emerging characteristics of LVS:

–the company is generating a ton of cash

–most of that is outside the US

–LVS’s mountain of debt doesn’t look so bad anymore.

What does LVS do with its cash?

Well, we know what LVS doesn’t do.  It doesn’t repatriate any more of this money to the US than it has to, since the funds sent stateside become subject to federal income tax at up to a 35% rate.  Burning the money in the street instead would at least allow you to roast hot dogs.

To my mind, it also doesn’t keep a lot of spare cash in the bank in Singapore.  Why not?  Although Singapore’s economic development model is based on Japan, its legal and political systems grew their roots during Singapore’s time as a British colony.  For the British, no monopoly–like LVS and Genting have in the casino business in Singapore–lasts forever.  And the faster a monopolist makes money, the sooner the rules that are allowing windfall profits change.  No, I’m not worried that the decade or so LVS and Genting have as exclusive casino developers will be altered.  My question is about taxes.  I think having bank balances in the billions in Singapore just invites the government to raise the gaming levy.

Interestingly, apparently in response to a question from the audience in Singapore, LVS management also said it has no intention of taking the Marina Bay Sands public, citing the illiquidity of the Singapore and Hong Kong stock markets (arguably true in Singapore’s case, but not relevant, in my opinion).  I draw three conclusions from this answer:

1) LVS doesn’t need the money,

2) LVS would like to keep 100% of the Singapore cash flow potential, which could be mind-bogglingly high, for itself,

3) Marina Sands could easily be the vehicle LVS uses to establish and fund Spanish operations, since there are no potentially pesky minority shareholders to object.  Also, Sands China will likely have its hands full with further expansion in China.

it’s how they roll

Once you get past the headline shock and realize the LVS has the looming problem of how to reinvest its Asian cash flows, Spain doesn’t look so crazy after all.  An aggressive move, yes.  But that’s just how LVS rolls.