Las Vegas Sands (NYSE:LVS) can retain its perch as Macau’s gross gaming revenue (GGR) leader, as the Londoner integrated resort ramps up, says a research firm. It adds that regulatory concerns pertaining to US operators in the world’s largest casino center are likely overblown.
In a new note to clients, Bernstein analysts say Sands currently controls 27 percent of GGR in the special administrative region (SAR) — a lead it can maintain or expand over the next several years, thanks in part to the $2 billion Londoner on the Cotai Strip. Previously known as Sands Cotai Central, Londoner is rolling out in various phases over the course of this year.
We forecast [Sands China] to deliver 103 percent of 2019 revenue in 2023 and 124 percent of 2019 revenue in 2025, driven by Macau recovery, the leading mass market share, and the redevelopment of the Londoner and the Grand Suites at Four Seasons,” said the Bernstein analysts.
Londoner is part of Sands’ effort to add approximately two million square feet of luxurious suite accommodations on the Cotai Strip. Las Vegas Sands, the parent company of Sands China, is the largest Macau operator, with five integrated resorts there.
With contributions from Londoner, LVS’s Macau GGR lead will be bolstered by dominance in the mass market — a segment in which the operator controls nearly a third of the share — and non-gaming offerings, including retail shops and meetings, incentives, conventions, and exhibitions (MICE).
Macau Regulatory Outlook
Last month, shares of concessionaires in the world’s largest casino center tumbled. That’s after authorities there announced the start of a new consultation period that includes an array of new policy pitches. Global investors are interpreting that as leading to more oversight and regulation. Among those considerations is a rule whereby government approval would be required to pay dividends to shareholders.
However, Bernstein believes those concerns are overblown. The research firm says speculation that China is looking to reduce the role of or even force US-based companies out of Macau is “unfounded” and “without evidence.” There are six Macau concessionaires, three of which are arms of US-based operators – Sands China, Wynn Macau and MGM China.
“China is not looking to deprive US operators in Macau of the business opportunity, or to treat them harshly compared to the Hong Kong operators,” says the research firm. “Over the past three years, China has made great strides in improving the regulatory environment with respect to foreign business and investment.”
Bernstein adds that while Macau’s gaming industry is the world’s largest of its kind, it’s too small to be a centerpiece of the ongoing geopolitical tensions between the US and China.
LVS Undervalued
LVS management feels comfortable that its Macau license will be renewed, and sees no chance a time will come where it’s not operating in the SAR.
“I do not — I see no chance of that whatsoever. I think we’re — I apologize by singing a broken record. But the truth is we’ve been doing this for a couple of decades, we have an unparalleled track record,” said CEO Rob Goldstein in response to an analyst question on the company’s third-quarter earnings conference call last week.
As for LVS stock, which is off 36.24 percent year-to-date, some analysts view it as a bargain among gaming names.
“The risk-reward trade off for Sands China is compelling, with a bear case indicating a 9 percent downside, while a bull case leads to a 132 percent upside and our base case showing 68 percent upside,” adds Bernstein.
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