A Solid Exposure on Improving Consumer Sentiment in China

Las Vegas Sands (LVS)

Source: TradingView

Investment Thesis

Las Vegas Sands is currently traded at the similar price it was traded during COVID. We believe there is plenty of room for growth since Macau visitors from the second-tier cities of China have not returned yet. Also, there are promising expansion projects in both Macau and Singapore.

Company Background

Las Vegas Sands Corp. (LVS) is a global developer and operator of integrated resorts in destination markets such as Macau and Singapore. The properties developed and operated by the company offer premium accommodations which include world-class gaming, entertainment and retail malls, convention and exhibition facilities, celebrity chef restaurants and various other amenities.

The company operates properties in Macau (The Venetian, The Londoner, The Parisian, The Plaza and Four Seasons, and the Sands Macau), and one property in Singapore, the iconic Marina Bay Sands (MBS).

The company focuses on mass market gaming, the company's most profitable segment.

Revenue Breakdown

The company reports revenue by business activity/product offering, as well as by property. On a business activity basis, as of 2024, casino continues to be the lions share of revenue at 75% of total company revenue, which is unchanged from F2019. Non-gaming revenue, which is comprised primarily of rooms, food & beverage, and convention/retail/other makes up 25% of the company’s revenue, led by rooms at 12%.

As a Las Vegas-based company, LVS used to operate in America, but they sold their

investments there, so now its only Macau (75%) and Singapore (25%).

In terms of properties, The Venetian (~37% of Macao revenue and ~28% of total company revenue), and followed by The Londoner (~27% of Macao revenue) where the company has made significant investments over several years. With Singapore being a much smaller gaming market relative to Macao, yet MBS comprising ~25% of total company revenue

Market Share and Competition

The casino industry is a typical example of oligopoly.

In Macau, the casino industry operates on a licensed-based system where there are six licenses given to operators. The six incumbent licensees are the American Sands, MGM, Wynn, the Macanese SJM and Melco and the Hong Kong Galaxy. The licenses are valid until 2033, which means no other operators can enter the Macau market.  

The Singapore casino scene is not much different - a duopoly with only Sands and the Malaysian Genting having licenses.

Growth Potential

The growth potential of LVS hinges largely on the recovery of the Macau tourism and gaming activities.

In 2024, Macau welcomed 34.9 million visitors, this is still 12% below the 2019 level of 39.4 million visitors.

While visitors from big cities like Hong Kong, Beijing or Shanghai have recovered to 2019 levels, the total Mainland China traffic is still at around 85% from 2019 levels. This is mostly due to the slow recovery of the visitors from the second-tier cities like Wuhan, Nanjing, Changsha, Chengdu and others – 70-75% from 2019 levels.

Historically, the visitors from second-tier cities contributed around 40% of the total gross gaming revenue in Macau, which reflects in the current numbers.

Source: Macau Gaming Inspection and Coordination Bureau

LVS should see outsized benefit from the recovery compared to peers due to their higher mass tourism exposure as the owner of the biggest hotel room inventory in whole Macau.

 
Source: Company Reports

Sands is also pursuing several major construction projects, namely the Marina Bay Sands Expansion and renovation which is worth over $8 billion. The company has also commited $4.4 over 10-years for non-gaming projects within Macau. Additioanlly, Sands has been exploring opportunities in New York and th UAE.

Valuation

In terms of price, the company is trading at similar levels as 2021-2022 – the toughest period during Covid.

The 2024 operating profit is $2.4 billion, which is still far below the levels of pre-2019 era – implying decent upside for the profitability.

Our DCF analysis shows that the company target price should be around USD 68.00, which is over 40% more than the current price.

Source: Company Reports

Risks

Las Vegas Sands is not immune to risks.

Geopolitical risks driven by China and U.S. dynamics remain the main concern. In addition to it, there is also a legislative risk related to sudden increase in taxation and fees which may harm the profitablity.

Lastly, as a very capital inesnitve business, big casino players like Sands need to invest billions of dollars of capex into maintaining and expanding their properties. This creates risk of underwhelming ROI and excessive depreciation expenses.