In an investor note on Las Vegas Sands, J.P. Morgan analyst Joseph Greff emphasized the strength of the company’s recovery in Singapore, home to Marina Bay Sands. However, due primarily to the weakness of the Macau market, he lowered his price target on LVS stock from $46 a share to $42, although he allowed that the Macanese predicament “is not at all surprising to investors.”
Greff foresees continued improvement in traffic, revenue, and cash flow at Marina Bay Sands “given premium mass momentum with travel easing and benefits from Singapore’s vaccinated travel framework. We anticipate that 2Q22 results will likely prove this out.” That said, he noted that few are paying attention to the stock or factoring these positive metrics into their valuation of it.
Singapore has swollen to fully half of Sands’ market capitalization.
“Our sense is that when we point this out to investors, they are surprised it is that high and the general perception is that Macau is the majority of the current equity value (and it was in the past when Macau was in its strong performing periods, pre-pandemic).”
And with new hotel, convention, and live-performance venues to be phased in over the next four years, Marina Bay Sands’ revenue-generation capability is expected to grow further, with cash flow rising 14 percent this year and seven percent in 2023 as visitors return.
In Macau, Greff is convinced that would-be buyers of LVS have had their expectations “washed out (and have been for a while now) and that expectations are for continued soft trends in visitation from China into Macau through the end of the year (to the extent that investors are paying attention and/or even care about Macau).”
He expects no recovery in the enclave’s casino economy until 2023, if then, calling 2022’s second-quarter revenue “dismal” and expecting more of the same in the third quarter, a mere shadow (12 percent) of pre-pandemic levels. VIP play is almost extinct – six percent of 2019 levels – while Sands’ bread and butter, mass-market play, was 17 percent of what it was three years ago.
Greff’s pessimism is driven by the near impossibility of forecasting the Chinese government’s anti-COVID measures, which have tended to choke off Macanese tourism. (By contrast, Sands CEO Rob Goldstein continues to predict that Macau will be back bigger than ever.) Compared to the “current doldrums” in China, Greff sees the Singapore market as “underappreciated” by investors. He concluded by reporting that the tender regulations for Macanese casino concessions have been promulgated (well behind schedule).
Sands need not worry, according to Greff. “The six incumbent gaming operators are expected to bid, and we anticipate receive new licenses. Included in the criteria, plans to diversify customer bases (from new markets) is anticipated to have a larger weighting with new licenses awarded by year-end.”
All six of Macau’s concessionaires have extended their contracts with the enclave through New Year’s Eve and should not miss if a beat if the expected renewal takes place on schedule.