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Takeaway: Finally, an acknowledgement that premium mass margins under pressure. 2015 estimates way too high - any relief rally could be short lived

Slight Q3 miss from reduced Street numbers but conference call commentary the more important driver. Singapore disappointing.

LVS 3Q 2014 CONF CALL NOTES - lvs1

LVS 3Q 2014 CONF CALL NOTES - lvs2


Mr. Adelson:

  • Solid results despite VIP challenges
  • Return excess capital to shareholders
  • As confident today as ever been in long-term future of company
  • Strategic position - creators of large scale, convention based Integrated Resort
  • Over 80% of profits from Mass, less than 20% from VIP in Macau
  • Size of cash flows >$5 billion affords developments in new jurisdictions as well as return capital to shareholders


  • Adjusted property EBITDA increased 3.2% to $809.0 million, reflecting mass gaming and non‐gaming growth but a challenging VIP environment 
  • Growth in China continues
  • Mass still growing 15% in Macao, expect mass to grow for foreseeable future, remains supply constrained and supply driven market
  • Current gaming softness is cyclical and will reverse
  • Strategy has not changed
  • 18.2 million people visited in Q3, up 8.2% YoY
  • Hotel room optimization yielding results
  • Largest employer in Macau across any industry
  • Rising labor costs - more than happy to increase salaries, revenues will outpace labor costs


  • Normalized hold adjusted ebitda +$15 million to $367 million 
  • Bringing in more foreign Premium Mass customers
  • Japan and Korea envy MBS as model for IR development, most iconic IR in the world.
  • Mall at MBS remains a go to, must visit shopping mall across SE Asia

New Markets

Development opportunity parameters:
— Minimum of 20% return on total invested capital
— 25% ‐ 35% of total project costs to be funded with equity

— project financing to fund 65% ‐ 75% of total project costs


  • Progress being made, process continues.
  • Potential for IR, remain enthusiastic


  • Extensive time on the ground
  • Focused on Seoul
  • Willing to commit substantial capital in both Japan and Korea


  • Exploring a scaled IR opportunity

Return of Capital

  • Confidence in business, reliability of cash flow affords significant return to shareholders via share repurchase and dividends
  • Have sufficient capital for planning and developing new projects
  • Announce dividend increase of 30% to US$0.65/quarter beginning in Q1 2015.  Every intention to increase dividend in years ahead.
  • $300 million returned in Q3 via share repurchase activity, completed initial $2 billion repurchase authorization
  • Authorized additional $2 billion repurchase


Q: Profit margin assumptions for mass, premium mass (slide 21), what's behind the lowered assumptions?

  • Competitive mass pressures on premium mass, structural advantage in base mass, steadfast in 45%+ margin in base mass. Higher flow through, blended near 45%, expect flow through to rise. 
    • Hedgeye: premium mass issues should've been acknowledged on the Q2 conference call

Q: Smoking ban impact?

  • Not impacting any segment. Smoking areas utilized. Obedient society, go to smoking rooms and return to tables.

Q: Buyback target vs. opportunistic due to lower share price?

  • Programmatic in nature, no guideline. Board meetings over the coming weeks, likely similar to past, but any opportunity should revisit.

Q: CapEx pushed out at Parisian?

  • Parisian targeted opening date:  Partial vs. Complete? Full opening in March 2016, partial opening in November or December if government approves partial opening. 
    • Hedgeye: we'd put the over/under in Q2

Q: Premium Mass competition - continued to shift tables to premium mass, slow shift or move back to base mass?

  • Move tables based on market demand. Excess supply on VIP.

Q: Visitation strong but GGR decelerating, shift in rated customers?

  • Believe as new properties open with new infrastructure, GGR will grow. Confident base mass, mass mass will grow. 

Q: VIP side in Macau, difference in incremental margin, direct hold impact?

  • Margins on VIP are healthy and commission rates not going up.

Q: New share repurchase authorization, how fund - FCF, leverage?

  • Have not addressed yet, plenty of money, historically all cash for development & construction, now go out and get construction facility which will recover capital.

Q: Singapore - sacrificing role for profitability, how frame trade off?

  • Cognizant of atmosphere, remaining conservative, bearish on VIP in Singapore - highly concentrated, very thin market, very competitive with RWS and Philippines. Competitor (RWS) that has had monopoly in Malaysia, but still buying business - paying 1.7% to 1.8% but also paying for Premium Direct, VIP Direct.  MBS maintaining Macau commission levels. Moving player money is a challenge for MBS.

Q: Interest in Japan if locals excluded, change scope of project/investment?

  • Not interested in Japan or any other market if foreigners only.  In Korea, 16 foreigners only casinos cumulatively don't make what Kangwon makes as locals casino.  Foreigners only casinos don't receive sufficient visitation to support Integrated Resort, need locals.

Q: Golden Week, helped liquidity?

  • Can't talk about Golden Week due to Q4 event.

Q: Malls: interest in selling, use cash proceeds to buy back stock?

  • Too soon to sell, given 19%+ CAGR over past five quarters.
  • Still reprogramming the malls to increase sales and sales/sq. ft. 
  • Four Seasons Mall US$7k/sq. ft. 
  • Never sell when growing ~20% CAGR YoY.
  • Too much opportunity over the next few years.
  • Original plan to monetize at 4% cap rate 

Q: Margins

  • Premium mass mid 30%, base mass mid 40s%

Q: VIP improvement - what causes confidence/improvement?

  • Investigation of corruption is narrowed but not complete, so need to rethink but based on new information need greater clarification of narrow scope of on going crackdowns. So, unsure of VIP rebound at present time, could be 3 to 4 months, maybe by Q2 2015.  VIP for sure not going away.

Q: Parisian tables - formula?

  • Macau government will favor if have more non-gaming vs. gaming - especially if gaming exceeds 10% of total floor space. 

Q: Hold adjusted basis in Macau, EBITDA margin flat YoY - how hold margins flat, what add'l efforts to keep margin?

  • Mass margins will keep/sustain margins due to mass driven model.
  • But competitive set - unclear what competitors will do in Premium Mass
  • Margins up 110 bps on hold adjusted basis.