Amid punitive coronavirus lockdowns in mainland China, shares of Macau casino operators are sagging again this year. Down 3.69% year-to-date, Las Vegas Sands (NYSE:LVS) isn’t immune to that trend.
Still, some analysts remain bullish on the largest Macau concessionaire, saying LVS and its Sands China unit are poised to rebound. In a new note clients, analysts at research firm Bernstein anoint Las Vegas Sands and Sands China as their preferred casino stock ideas for the second quarter, rating each “outperform.” The analysts also offer up a forecast on when the gaming company could restore its dividend.
With strong cash flow and limited CAPEX commitment over the next few years we expect Sands China to de-lever and return to paying dividends by 2024,” notes Bernstein.
Once the biggest dividend payer among US-based gaming companies, Sands suspended its payout two years ago to conserve cash at the start of the pandemic. Following a new agreement with creditors reached last year, it was believed the gaming company could not and would not restart the payout until late 2022 at the earliest.
LVS long had one of the richest payouts in the gaming industry, as well as one of the more enviable track records of payout growth. When the dividend was suspended, it was $3.16 per share annually and yielded 6.88 percent. It was a tough decision for the late Sheldon Adelson, as the former LVS chairman and chief executive officer was known for saying, “Yay, dividends!”
Rays of Hope in Singapore
Currently, the LVS portfolio consists of five Macau integrated resorts and Marina Bay Sands (MBS) in Singapore.
While the road to recovery in Macau is growing longer and seemingly suffers a setback on a weekly basis, LVS can offset some of that risk with MBS because the near-term outlook for Singapore casinos is brighter than it is for the equivalent Macau venues.
“We expect a ramp up in business activity at Singapore integrated resorts to start in the second quarter, and accelerate into 2023,” notes Bernstein.
The research firm adds MBS drove $1.7 billion of earnings before interest, taxes, depreciation and amortization (EBITDA) on margins of 54% in 2019 — before COVID-19 emerged — making it the most profitable high-end integrated resort in the world. Bernstein estimates MBS can return to $1.7 billion in EBITDA in 2024 and jump to $1.9 billion the following year.
Macau Not Lost Cause
Broadly speaking, it’s easy to find analysts with bearish views on the current Macau landscape. That’s understandable as there’s limited visibility as to when China will halt its futile zero COVID-19 policy and due to the death of the junket business there.
However, widespread consensus holds that Macau’s mass and premium mass markets will bounce back much more rapidly than VIPs. That’s a positive for Sands China because it, along with Galaxy Entertainment, is dominant among mass market gamblers.
Sands, which has 30% market share in Macau, can outperform rivals due to its positioning among premium mass patrons and with the help of new amenities, according to Bernstein.
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