Bridgewater Associates' new positions in 4Q 2013: Important points

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Part 3
Bridgewater Associates' new positions in 4Q 2013: Important points PART 3 OF 7

Why has Bridgewater opened a new position in Las Vegas Sands?

Bridgewater Associates and Las Vegas Sands

Las Vegas Sands Corp. (LVS) is a 0.14% position in Ray Dalio’s Bridgewater Associates portfolio. Las Vegas Sands is the leading developer and operator of integrated resorts in Asia and U.S. that feature state-of-the-art convention and exhibition facilities, premium accommodations, world-class gaming and entertainment, destination retail and dining (including celebrity chef restaurants), and many other amenities.

Why has Bridgewater opened a new position in Las Vegas Sands?

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LVS, the world’s largest casino company, controlled by billionaire Sheldon Adelson, last month reported 4Q 2013 earnings that missed analyst estimates. GAAP net income increased 32.8%, to $577.5 million, compared to $434.8 million in 4Q 2012, while diluted earnings per share increased 32.1% to $0.70, compared to $0.53 in the same quarter the prior year. The increase in operating income was principally due to stronger operating results across the company’s Macao property portfolio.

The company mainly generates revenue from its profitable casinos in Macau and Singapore. Strong gaming volumes in Macao drove hold-normalized adjusted property EBITDA up 55.8%, to $887.6 million. Growth was mainly driven by Venetian Macau and Sands Cotai. Net revenues for Sands China Ltd. increased 28.4%, to $2.53 billion in the fourth quarter of 2013, compared to $1.97 billion in the fourth quarter of 2012. LVS also saw strong performance, with a sales increase driven by the Venetian Las Vegas and Palazzo resorts. However, Marina Bay Sands in Singapore saw a 14% decline in EBITDA, to $259 million.

According to Citi Research’s outlook on casino gaming “2014 will be a watershed year for Macau and US gaming stocks” as supply is expected to be lesser than demand. Citi analysts said:

  • “In Macau, this is the first year since 2005 with no major casino opening to drain growth and it should be a year with excess demand given the largest hotel in the PRC opening up just across the border on Hengqin. This is in stark contrast to what happened in the last three years, where Galaxy Macau and Sands Cotai Central, the two newest properties in Macau, took away a significant portion of Macau’s GGR growth. In addition, we believe the market has yet to fully price in the significant positive impact that Hengqin will bring to Cotai and Macau as a whole.”

The analysts expect a growth rate of 20% in Macau. VIP growth is expected at 13%, while growth at mass is 35%. Las Vegas Sands’ 3,000-room Parisian Macau is expected to open in 2015. MGM Resorts (MGM) and Wynn Resorts (WYNN) will also open new properties in 2016 and 2017.

Why has Bridgewater opened a new position in Las Vegas Sands?

Las Vegas Sands Corp. said last year that a formal proposal to invest more than $30 billion to develop a series of integrated resorts in Madrid, Spain, won’t be forthcoming from the company but that now “our focus is on encouraging Asian countries, like Japan and Korea.” Reports have indicated that Japan is set to legalize casino gambling, with analysts saying the schedule of the legislation’s passing should enable Japan to have at least one casino in operation before Tokyo’s 2020 Summer Olympic Games.

PwC estimates that, going forward, Macau and Singapore will continue to fuel growth in Asia Pacific during the next few years, while other countries in the region may look to encourage growth in casino gaming to gain tourism and tax dollars. By 2015, the Asia Pacific market will reach $79.3 billion, from $34.3 billion in 2010—an 18.3% compound annual increase.

Considering these factors, Las Vegas Sands and its peers are poised to benefit from growth in Asia.


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