What Can We Expect From Las Vegas Sands in the Macao Market?



Sands performance in Macao

The weakness in the Macao market continues as the region sees gaming revenues decline for the 16th consecutive month as of September 2015. This has affected all casino operators in the market, including Wynn Resorts (WYNN), Melco Crown Entertainment (MPEL), and MGM Resorts (MGM), as they all experienced continuous revenue declines during 3Q15.

The Sands China saw a 29% year-over-year decline in its unit’s revenues to $1.66 billion. Its adjusted property EBITDA (earnings before interest, tax, depreciation, and amortization) fell by 32.8% year-over-year to $545 million for the quarter. Despite having strict cost control measures in the region, the net income for the unit fell by about half to $343.2 million for the quarter.

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The Venetian Macao resort saw a market-leading EBITDA margin of 36.6% while its operating income dropped almost $100 million during the quarter. The other property, Sands Cotai Central, saw even steeper declines with revenues falling by about 32% year-over-year to $550 million. Its operating income declined by more than 50% to $94.5 million. The Four Seasons Macao and Sands Macao also saw their respective sales and profits drop in line with the broader Sands China’s performance.

What does the future hold?

The Chinese government has declared its intentions to help rebuild Macao. Although the government hasn’t explicitly said what it plans to do, this is the first positive comment in more than a year. These actions should be geared toward improving mass market tourism in the country. Analysts expect this could include easier border crossing measures, easing of visa restrictions, and continued infrastructure improvements.

The Las Vegas Sands (LVS) also awaits the 2016 opening of its two new resorts in the region, which should take the company’s reach to 13,000 hotel rooms in Macao. Wynn Resorts (WYNN), and MGM Resorts (MGM) are also opening new properties in Macao next year, and Galaxy Entertainment recently opened a new property. This growth in capacity is coming at a time when Macao’s value per customer is declining. As the CEO of the Las Vegas Sands, Sheldon Adelson, noted, Macao’s environment continues to remain challenging.

Investors who want to avoid the risk of investing in a single casino company may invest in ETFs that invest in casino stocks. The VanEck Vectors Gaming ETF (BJK) is one such fund. For a broader exposure, you can invest in the iShares US Consumer Services ETF (IYC).


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