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Q4 was likely very strong on most metrics but may not provide the upside that investors have come to expect.  Will 2011 be any different?

Singapore generated more revenue and profits than virtually anyone predicted in 2010.  Bravo.  Where do we go from here?  We are trying to put the math behind a credible theory that a lot of the initial upside was driven by the local Singaporean business.  If that business has been fully penetrated then growth could be impeded.  We estimate locals drove roughly one third of 2010 gaming revenues.

The problem won’t be growth.  Singapore should grow nicely, probably in-line with Southeastern Asian GDP plus a kicker from licensed junkets.  However, we suspect analysts and many in the investment community are expecting much more.  Indeed, analysts appear to be valuing Singapore EBITDA on a Macau-like trajectory.  We estimate the consensus target price is derived using an 18x 2011 EV/EBITDA multiple on LVS’s MBS property.  That’s aggressive even for a Macau property, despite the fact that in Singapore casinos pay income tax on gaming income while in Macau they don’t.

For Q4, our sense is that rolling chip was only up modestly from Q3.  Mass likely grew but will it be enough to drive more than the 15% sequential revenue gain that analysts appear to be projecting?  It might be tough.  October was clearly the strongest month of the quarter and December appears to have been a good month, but maybe lower gaming volumes than the operators were projecting.  Indeed, the monthly government tax receipts from gambling for October and November did not grow that much from Q3.

For 2011, will Singaporean tourism growth match the 20% increase generated in 2010?  To some extent, growth may be limited by a tough comparison of an explosive 2010.  The Singaporean government is projecting much lower visitation growth for 2011 and GDP estimates have recently been cut.  GDP and tourism growth will likely be the main drivers in gaming growth and while both are expected to be strong, they may not be enough to satisfy investors’ appetites for Macau like growth.  The licensing of junkets should boost growth, but not for LVS, at least not in 2011.  LVS is not sponsoring any junkets at this point.

Despite the recent underperformance of LVS versus other Macau stocks, the valuation remains steep and is indicative of expectations of upside over current Singapore estimates.  Consensus 2011 estimates of $1.4 billion in EBITDA for Singapore in 2011 look reasonable to us, not conservative.  We remain bullish on Macau, although the recent LVS market share loss looks sustainable.  Even with Macau, we question whether there will be a lot of upside to existing estimates.  Besides, if there is Macau upside, the more directly exposed Macau players (WYNN for instance) will fare better.