LVS: EARNINGS SHOULD BE SOLID

We’re above the Street with Singapore being the wild card

 

 

We like the LVS setup.  The underlying fundamentals in Macau are strong.  While October market growth may be only in the mid-single digits, the comparison is the most difficult ever.  November and December should show YoY growth acceleration.  LVS’s market share is building again following a hold depressed September and should normalize over the near-term around 20%.  We expect share could move into the 22-24% range in 2013 which would certainly provide some upside to earnings and sentiment.  While the Singapore market is experiencing growing pains, LVS should continue to gain share.  Importantly, following a disappointing Q2, MBS projections have moderated significantly and look appropriate.  With Macau likely providing the upside, we don’t see Singapore as a drag any more.  Higher earnings, improving sentiment, and an attractive valuation of 12x 2013 EV/EBITDA provides a good entry point.

 

 

Here are our projections:

 

OVERALL

 

Our Q3 revenue and EBITDA projection for LVS is $2.88 billion and $962 million which is in-line and 1% above the Street, respectively.  We’re solidly above the Street for Macau, slightly below for Singapore, and slightly above the Street for Las Vegas.

 


MACAU

 

Our estimate for Macau property-level EBITDA and net revenues is 8% and 3% above the street at $511MM and $1.63BN, respectively.  More specifically, we’re above the Street on Sands and Venetian but below the street for Four Seasons and Sands Cotai Central’s performance.  Venetian played lucky this quarter but the rest of LVS’s portfolio didn’t have the the hottest hand.  On a portfolio basis, we don’t believe that the hold impact was material on EBITDA and based on our math, it could have been even slightly positive.  That said, we’re sure that LVS will say otherwise since we estimate that hold across Sands China’s portfolio was 2.81%.

 

Venetian


Venetian is projected to report net revenue of $770MM and EBITDA of $296MM, 11% and 18% above consensus, respectively.

  • Net gaming revenue of $679MM
    • $254MM of net VIP revenue    
      • RC volume of $10.9BN, down 14% YoY and 3% QoQ
        • Junket RC volume dropped another 2% QoQ on top of a 20% QoQ drop in 2Q, to $7.8BN.  We assume direct play of $3BN, down a bit from $3.2BN in 2Q, but in-line with a direct play rate of 28% (same as 2Q)
        • Hold rate of 3.49%, which is 55bps above the property's historical hold rate.  We estimate that high hold benefited net revenues by $38MM and EBITDA by $21MM.
      • Rebate rate of 115bps or 33% of hold
    • Mass table revenue of $366MM, up 23% YoY
    • Slot win of $58MM
  • $91MM of net non-gaming revenue
    • $53MM of room revenue ($232 ADR/87% Occ/$202 RevPAR)
    • $20MM of F&B revenue
    • $52MM of retail, entertainment and other revenue
    • $34MM of promotional expenses
  • Variable expenses of $355MM
    • $313MM of taxes
    • $22MM of junket expenses assuming a commission rate of 1.36% (rebate + promoter expense )
    • $24MM of recorded non-gaming expense
  • $95MM of fixed costs, up 11% YoY but down from an estimated $96MM last quarter

 

Sands Macau


We expect Sands to report net revenue of $312MM and EBITDA of $89MM, 6% and 14% above the Street, respectively.

  • Net gaming revenue of $306MM
    • $122MM of net VIP revenue    
      • RC volume of $6.9BN (down 13% YoY) assuming 9% direct play and a hold rate of 2.81%
      • Rebate rate of 104bps or 37% of hold
      • Assuming historical hold of 2.94%, net revenues and EBITDA would have been $15MM and $9MM higher, respectively
    • Mass table revenue of $159MM, up 10% YoY
    • Slot win of $24MM
  • $6MM of net non-gaming revenue
  • $172MM of variable expenses
    • $147MM of taxes
    • $16MM of junket expenses assuming a commission rate of 1.19% (rebate + promoter expense ) or 33%
    • $4MM of recorded non-gaming expense
  • $47MM of fixed costs, down 21% YoY and 1% QoQ

 

Four Seasons

 

We estimate $230MM of net revenue and $66MM of EBITDA, 12% and 8% below the Street, respectively.    

  • Net gaming revenue of $201MM
    • $154MM of net VIP revenue    
      • RC volume of $9.0BN, up 116% YoY but down 2% QoQ on top of a 28% sequential decrease in 2Q
        • Junket RC volume is down 29% since the opening of SCC QoQ to $7.6BN, no doubt as a result of some of the junkets moving over to SCC.  We assume that direct play is close to the $1.4BN; close to last Q’s number or 16% of total RC.
      • Hold of 2.55%, 19bps below the historical hold at FS
      • Rebate rate of 84bps or 33% of hold
      • Using historical hold rate, we estimate that net revenue and EBITDA would be $11MM and $4MM higher, respectively.
    • Mass table revenue of $36MM, down 14% YoY- the property's first YoY decrease in Mass revenues
    • Slot win of $11MM
  • $29MM of net non-gaming revenue
    • $10MM of room revenue
    • $6MM of F&B
    • $23MM of retail, entertainment and other
    • Promotional expenses of $9MM
  • $138MM of variable expenses
    • $108MM of taxes
    • $24MM of junket expenses assuming a commission rate of 1.11% (rebate + promoter expense )
    • $8MM of recorded non-gaming expense
  • $17MM of fixed costs, down 9% YoY and flat QoQ

 

Sands Cotai Central

 

We estimate $319MM of net revenue and $60MM of EBITDA, 5% and 16% below of the Street, respectively.    

  • Net gaming revenue of $289MM
    • $285MM of net VIP revenue    
      • RC volume of $9.3BN
        • Junket RC volume of $8.3BN.  We assume direct play of 11%, that implies a hold rate of just 2.28%. Direct play in 2Q was approximately 12%.
      • Rebate rate of 79bps
      • Assuming theoretical hold of 2.85%, net revenue and EBITDA would be $32MM and $11MM higher, respectively.
    • Mass table revenue of $118MM
    • Slot win of $32MM
  • $30MM of net non-gaming revenue
    • $24MM of room revenue
    • $14MM of F&B
    • $8MM of retail, entertainment and other
    • Promotional expenses of $15MM
  • $170MM of variable expenses
    • $141MM of taxes
    • $22MM of junket expenses assuming a commission rate of 1.02% (rebate + promoter expense )
    • $13MM of recorded non-gaming expense
  • $77MM of fixed costs

 

SINGAPORE


We project $782MM of net revenue and EBITDA of $414MM, 5% and 1% below consensus, respectively.

  • Net gaming revenue of $641MM
    • $218MM of net VIP revenue    
      • RC volume of $13.4BN, down 20% YoY
      • Hold rate of 2.88%
      • Rebate rate of 1.25%
    • Mass table revenue of $278MM
      • Drop of $1.2BN, up 3% YoY and 22.5% hold
    • $145MM of slot & EGT win
  • $141MM of net non-gaming revenue
    • $84MM of room revenue ($360 ADR/99% Occ/$356 RevPAR)
  • $78MM of gaming taxes and $42MM of GST
  • $240MM of fixed costs, compared to an estimated $228MM in 2Q and $240MM in 1Q

 

LAS VEGAS

 

We estimate that Venetian and Palazzo’s net revenues will be $359MM with EBITDA of $93MM, which are 2% and 4% above Street estimates, respectively.

  • Net casino revenue of $130MM
    • Table revenue of $113MM
      • Drop of $563MM, up 5% YoY
        • 20% hold
    • $42MM of slot win
      • $490MM of slot handle, flat YoY and 8.6% hold
    • Rebates of $24MM or 4.5% of GGR
  • $116MM of room revenue - $181 RevPAR (+2% YoY)
  • $138MM of F&B, retail & other revenue
  • $25MM of promotional allowances or 16% of GGR
  • 5% YoY increase in operating expenses to $255MM and consistent with run-rate in 1H12 

 

BETHLEHEM  

 

We expect Sands Bethlehem to report $120MM of revenue and $29MM of EBITDA, 6% above consensus on both metrics.

  • $109MM of gaming revenues
    • Table revenue of $36MM
    • $73MM of slot win
  • $11MM of net non-gaming revenue
  • $46MM of taxes
  • $45MM of operating expenses

 

OTHER

  • D&A: $230MM
  • Rental expense: $11MM
  • Corp and stock comp expense: $67MM
  • Net interest expense: $59MM

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