GGRAsia – Las Vegas Sands 1Q results stifled by Macau outlook

Las Vegas Sands 1Q results stifled by Macau outlook

Apr 23, 2015 Newsdesk Latest News, Macau, Singapore, Top of the deck

U.S.-based casino operator Las Vegas Sands Corp reported a 34-percent drop in company wide first-quarter profit on a poor performance from its Macau unit, Sands China Ltd. The firm’s Singapore casino resort, Marina Bay Sands, also posted softer results for the first three months of 2015 than in the year-prior period.

Las Vegas Sands on Wednesday reported net revenue for the first quarter of 2015 decreased 24.9 percent to US$3.01 billion. Net income declined 34.0 percent to US$511.9 million, compared to US$776.2 million in the first quarter of 2014. Diluted earnings per share dropped 32.6 percent to US$0.64.

Company chairman and chief executive Sheldon Adelson admitted in a statement “the operating environment in Macau, particularly in the high-end gaming segments, remained challenging during the quarter.”

He added in a follow-up conference call: “I am today as confident as I have ever been in the long-term outlook for the Macau market… Let me be specific: first, not only will we work to complete our St. Regis Macao [scheduled to open later this year] and The Parisian Macao projects in Macao as expeditiously as we can, we are also as eager as ever to develop additional resort and non-gaming facilities.”

On Friday, online portal MacauNews – crediting local media sources – reported that Mr Adelson stated he had submitted an application to the Macau government to build a 2,500-room “non-gaming project”. The reports didn’t specify a location for such a project. Sands China told GGRAsia by email that it had no additional comment on that issue.

In another email from the company in response to reports that Las Vegas Sands was considering turning its Sands Macao property into a hotel-mall and moving the gaming tables to The Parisian, a spokesman said: “No conversations about turning the Sands [Macao] into a mall/hotel and shifting the tables to Parisian have ever taken place.”

During Wednesday’s earnings conference call, management said the company was now aiming to open The Parisian between “late summer to November 2016” versus prior indications of “sometime” in 2016. The Parisian will have capacity for up to 450 gaming tables and 2,500 slot machines and electronic table games.

Slump goes beyond VIP

Total net revenues for Hong Kong-listed Sands China decreased 34.9 percent to US$1.77 billion in the first quarter of 2015 on a generally accepted accounting principles basis, the parent firm said. First-quarter earnings before interest, taxation, depreciation and amortisation (EBITDA) fell to US$531 million, a 26-percent drop in quarter-on-quarter terms, and 43.4 percent year-on-year decline.

Net income for the Macau unit, which operates four casinos, decreased 54.2 percent to US$344.7 million in the first quarter of 2015, compared to the year-ago quarter.

Several investment analysts covering the gaming sector say VIP gamblers are staying away from Macau because they want to keep a low profile during the current corruption crackdown in mainland China. But the effect is starting to be felt in other segments of the industry.

Mr Adelson admitted that “the decline in gaming does also of course start to impact some of the non-gaming segments”. Sands China’s non-gaming revenues for the quarter declined by 4 percent year-over-year, as did the number of overall property visitors.

Commenting on the results, Deutsche Bank AG analyst Karen Tang noted that Sands China first-quarter results fell 6 percent below market consensus.

Ms Tang additionally stated that Sands China’s mass gaming revenue dropped 8 percent quarter-on-quarter. “Worryingly, the weakness was not only in premium mass,” she pointed out adding that this hints “player quality has deteriorated”.

Sands China VIP volume fell 24 percent quarter-on-quarter and 54 percent year-on-year during the first quarter. The Deutsche Bank analyst highlighted that junket commissions rose 220 base points quarter-on-quarter to 45.5 percent of VIP gross gaming revenue (GGR).

Market wide first quarter mass GGR in Macau, including slots and electronic table games, fell by 27.0 percent year-on-year to approximately MOP27.11 billion (US$3.40 billion), according to official Macau government data published on Friday. VIP baccarat GGR fell 42.1 percent in the quarter to MOP37.67 billion.

Singapore down too

Las Vegas Sands’ Marina Bay Sands in Singapore generated adjusted property EBITDA of US$415.3 million, a decrease of 4.6 percent compared to the first quarter of 2014, the parent said. “On a constant-currency basis, EBITDA increased 0.2 percent,” the firm added.

Rolling chip volume for the Singapore property decreased 22.0 percent to US$10.09 billion for the quarter. Non-rolling chip drop was US$1.11 billion, down 4.2 percent, while slot handle increased 1.1 percent to US$3.08 billion.

During Wednesday’s conference call, Mr Adelson mentioned the upcoming mid-term review of the gaming concessions the Macau government plans to conduct this year.

“While it has become fashionable for everyone to talk about Macau’s diversification from gaming, we have consistently been delivering on all aspects of diversification over the past decade,” he said.

“Take MICE for instance. The overall Macau industry grew from 1.2 million attendees in 2009 to 2.6 million in 2014. Our Sands China subsidiary accounted for 80 percent of that growth.”

Mr Adelson also noted that Sands China’s three retail malls generated US$2.5 billion of retail sales in 2014, up 12 percent year-on-year versus an overall Macau market that was up by only 1 percent. He added that the firm had been responsible for bringing several “world class entertainment events” to Macau, including pop concerts, sports events and musicals.

In on note following the announcement of Sands China results, Credit Suisse AG analysts Kenneth Fong and Isis Wong admitted the firm’s “large asset base will benefit longer term when the market recovers, but also makes it more vulnerable in the current slowdown.”

They added: “Operationally, Sands [China] may see more revenue decline as it can no longer benefit from the spill over demand from its competitor[s] which faced capacity constraint in the past.”