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Takeaway: Base mass is the story, and it’s an ugly one


Wow, what a ugly quarter! I’ve felt like I was pushing on a string trying to get people to focus on the single most problematic issue facing the Macau stocks:  Macau base mass business is declining.  We didn’t have hard revenue data to support our thesis, until now.  As it turned out, not only was base mass down, it was down horrifically.  The Street may have been anticipating flattish base mass while Hedgeye was expecting down mid-single digits.  We weren’t bearish enough as base mass plummeted 21% YoY at the Sands China properties in 1Q 2015.  Severe degradation of base mass revenues have huge ramifications for margins as evidenced by Macau property margins that were 400bps below the Street.

The only bright spot was only bright on a relative basis. Marina Bay Sands in Singapore beat expectations but on a hold adjusted basis, EBITDA was slightly below the Street and slightly above Hedgeye’s.  The property played lucky but volumes were down.  USA EBITDA also missed projections.

Our negative Macau thesis was predicated on significantly lower EBITDA estimates owing to negative implicit base mass projections. Remember that base mass carries the highest margins of any gaming segment. Since LVS was most exposed to base mass, the variance between Hedgeye and the Street was most pronounced in this name.  Apparently, the variance was not big enough.

LVS Q1 2015 TAKEAWAYS - base


  • No shares repurchased during the quarter following an aggressive buyback in previous quarters. This is telling - they need to protect the dividend.
  • Macau properties:  given the high fixed cost nature, the decline in base mass was a big blow to margins – operating expenses rose to a record high as a % of net revenues
  • Premium mass table reclass
    • Venetian Macau:  we estimate approximately 50% of the previously reclassed premium mass tables to direct VIP have been reversed.
    • Four Seasons:  also reclassed back some tables in 1Q
    • Sands Cotai Central:  we estimate SCC reclassed ~20% of its premium mass tables in 1Q
  • Disappointing non-gaming revenues as well
    • Each Macau property missed our non-gaming revenue targets. It was broad-based with significant weakness particularly in room revenue and retail.
    • At MBS, every category missed slightly on the non-gaming side
    • Vegas non-gaming (ex rooms) fell for the 1st time since Q4 2012. Room revenue also dropped YoY.
  • MBS under the hood
    • Despite high VIP hold, GGR fell 11% YoY in 1Q 2015 – consistent with the trends seen in the government tax receipts
    • Receivable Reserve % was lowest since 1Q 2014. Quarterly bad debt was lowest since 2012.
  • Vegas
    • Slot business remain hot for LVS with its 4th consecutive quarterly growth
    • Venetian played unlucky on both slots and tables


We will be hosting a flash call at 11:30am today (Thursday) to discuss the quarter and our outlook in more detail.  The focus will be on the base mass segment given the magnitude of the disappointment there, the significant margin implications of lower base mass expectations and the resulting impact on investor sentiment.  Long-term investors own Macau stocks primarily because of the view that base mass is the growth driver.  Will they now capitulate?