Las Vegas Sands’ Singapore investment paying dividends

October 20, 2022 3:40 PM
Photo: By Kennyieong., CC BY-SA 3.0,
  • Buck Wargo, CDC Gaming Reports
October 20, 2022 3:40 PM
  • Buck Wargo, CDC Gaming Reports

Las Vegas Sands’ CEO Rob Goldstein said Wednesday that a $1 billion investment underway at Marina Bay Sands in Singapore is paying dividends for the company as it awaits the return of tourism in Macau, which could be on the horizon.

The property’s adjusted earnings reached $343 million in the third quarter, benefiting from the relaxation of virus-related restrictions in many of its source markets. Airline arrivals have also improved, he added.

“We expect a robust recovery over time, as further relaxation measures in the region are implemented and additional airlift in Singapore comes online,” Goldstein told Wall Street analysts.

The $1 billion in capital investment has introduced “exceptional new suite products in premium-segment-focused amenities of the resort, and the response to these initial offerings has been strong,” Goldstein said. Additional offerings, including spacious new suite products, will be introduced throughout the remainder of this year and in 2023.

As for Macau, Goldstein said the operating environment remains difficult, but tourism restrictions have been relaxed to customer demand. Spending in Macau has proven resilient at the premium-mass level from both a gaming and retail perspective, he said.

Goldstein talked about LVS submitting its tender proposal in September for one of the six gaming concessions in Macau, which is now in the consultation phase. That means they won’t be able to comment much further at this time.

“We’re big believers in Macau as a world center of tourism and leisure,” Goldstein said. “We’ve been the biggest investor and have operated non-gaming businesses over the past two decades in Macau. We absolutely welcome the opportunity to invest even more in the non-gaming products and offerings in Macau. We have great confidence in Macau’s tourism recovery and its long-term growth prospects. We’ll do our utmost to support Macau’s economic diversification and its evolution as Asia’s leading destination for (corporate travel) and leisure visitors.”

Wilfred Wong, president of Sands China, said they’ve been working closely with the government.

“We are waiting for government notification whether there will be another next round of discussion,” Wong said. “And the timetable remains the same. We expect some notification about the next step toward the end of the month.”

Gaming analysts’ notes to investors were mostly positive about LVS and its trajectory.

Joseph Greff, an analyst with J.P. Morgan, said the Singapore results were encouraging, with adjusted earnings 5% higher than Wall Street consensus. Hotel occupancy was strong at 96%, despite disruption with 500 rooms out of service for renovation.

Currently, Marina Bay Sands has annualized EBITDA of about $1.4 billion, just $200 million below 2019 pre-pandemic levels. Greff says they see growth beyond 2019 levels once capital investment is complete and starts “to bear fruit in 2024 and beyond.”

In Macau, LVS’s 3Q22 results were challenged, similar to recent second-quarter results, given limited travel mobility from Mainland China due to a zero-COVID-tolerance policy, Greff said. Its EBITDA loss of $158 million was in line with the consensus.

“Looking ahead, we are optimistic that relaxed travel policies announced last month will allow for the beginning of a recovery and gradually improving travel volumes, emphasis on gradual,” Greff said.

Deutsche Bank analyst Carlo Santarelli highlighted China Airlines resuming international routes, visa restrictions potentially loosening in the coming weeks or months, progress toward a vaccine for Mainland China, and a likely finalized concession process by year-end. That could mean the third quarter earnings call will be the last time Macau is an afterthought for investors, he said.

“In the event some, or all, of the aforementioned come to fruition, we believe the Macau recovery and reopening story would render LVS one of a small handful of domestic large cap ways to play a China-centric recovery and reopening theme,” Santarelli said. “Given U.S. macro concerns, we believe LVS is well positioned to continue to outperform within the gaming sector.”

David Katz, an analyst with Jefferies, said the stronger-than-expected results in Singapore “imply a positive Macau trajectory” beginning later this year. While the reopening of Macau bears some uncertainty in terms of timing and revenue mix, Katz said they view the call and commentary as support of its bullish view on LVS shares.

CBRE Senior Analyst John Decree talked about how Singapore carries the load, but Macau remains elusive. He noted the mixed messages on Macau’s recovery.

“While we remain hopeful that group tours and e-visas get reinstated by the end of the month or early November, it remains unclear if visitation to Macau will accelerate given Beijing’s unwavering commitment to its zero-COVID policy,” Decree said. “As LVS management indicated, it continues to be increasingly difficult to forecast a recovery with any degree of confidence. We continue to expect a gradual recovery, though with little visibility on timing.”

For now, Decree said CBRE’s model assumes Macau recovers to 50% of 2019 revenue in 2023, but they are lowering its Macau fiscal year 2023 EBITDA estimate to $1.45 billion from $1.88 billion.

“At the moment, we suspect that number would more likely need to be revised downward than upward, given China’s commitment to zero-COVID,” Decree said. “Without signs of herd-immunity or broad distribution of an effective mRNA vaccine, we think a rapid reopening is unlikely.”