Las Vegas Sands Positioned to Capitalize on Macau Rebound, Says Analyst

Posted on: June 11, 2020, 12:01h. 

Last updated on: June 11, 2020, 12:47h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Las Vegas Sands (NYSE:LVS) is still grappling with the effects of the coronavirus in Macau, the company’s most important market. But at least one analyst says the operator has the offerings needed to capitalize on a rebound in the world’s largest gaming hub.

Las Vegas Sands Could Capitalize On Macau
Sands Cotai Central, seen here, is one of the operator’s Macau venues primed to rebound as travel controls ease. (Image: South China Morning Post)

The Special Administrative Region’s (SAR) gaming-dependent economy is languishing as various travel restrictions implemented at the height of the COVID-19 pandemic remain in place, stifling visits and gross gaming revenue (GGR). Still, LVS executives are optimistic that when travel controls ease, business will slowly return to normal.

However, management is hopeful that over the next couple of weeks, certain travel restrictions will be lifted and the current depressed Macau GGR run-rate declines can slowly start to reverse,” said Stifel analyst Steven Wieczynski in a note provided to Casino.org. “The good news is that LVS has been able to accelerate some of their Londoner transformation while the Macau market has remained essentially ‘closed.’”

Sands is spending $2.2 billion to increase Macau premium suite capacity by two million square feet. Combined with Galaxy Entertainment, LVS controls more than 45 percent of the gaming market in the Chinese territory.

Pent up Demand

In the wake of the coronavirus, it’s been common for gaming management teams to tell analysts and investors about pent-up demand. With most domestic casinos back online, that thesis is being borne out. But Asia is a different story because of the quarantine measures and travel bans affecting Macau, and the still-closed status of Singapore’s two casinos, including LVS’s Marina Bay Sands.

“LVS made it abundantly clear that pent-up demand in both Macau/China and Singapore should allow the company’s operations to bounce back relatively quickly once government imposed closures/travel restrictions are lifted,” said Wieczynski.

The analyst acknowledges that while Macau is still being hindered by a 15-day closure of gaming venues in February – a shutdown that crimped the ability of Sands to generate free cash flow (FCF) – LVS is still one of the more “defensible” names in the industry, and that it’s dominant market share on the peninsula isn’t threatened.

Wieczynski reiterated a “buy” rating on LVS stock with a $65 price forecast, implying upside of about 25 percent from current levels.

Waiting on Reopenings

For Macau operators, easing of travel restrictions is essential to rebound hopes in the second half of 2020. There is the potential for positive news on that front, as Hong Kong and Macau are reportedly working on plans that would end the 14-day quarantine protocol required of travelers moving between the two SARs.

“(LVS) Management expects the next phase of reopening will involve the granting of business visas to Guangdong travelers, with group visas and IVS permits likely to follow,” said Wieczynski.

“IVS” refers to the individual visit scheme, the primary visa used by gamblers from mainland China to enter Macau. Guangdong province is the mainland region closest to the gaming center. Home to 120 million residents, it’s a vital artery for delivering tourists to the casino mecca.