Union Gaming is anticipating that Las Vegas Sands, parent company of Sands China, will report revenues and profits of US$3.173 billion and US$1.058 billion, respectively, reflecting their reduction of expectations for the Macau market. The operator is scheduled to publish its first quarter earnings after markets close today in the U.S. The brokerage estimates for the first quarter of LVS’s Macau property level EBITDA (operational profit) some US$606 million. ‘Our estimates reflect a 30.4 per cent Y-o-Y decline in revenue and a 35.4 per cent decline in EBITDA in LVS’s Macau operations for 1Q15. The revision reflects a more dramatic decline in VIPs than we initially contemplated, along with higher cost pressures in the market. The largest revisions came from the operator’s Plaza and Sands Macao properties,’ the report reads. The analysts also point out that LVS’s Macau operations will see softer 1Q15 margins in comparison to 4Q14 on account of their heavier exposure to retail. They gave the example as high-margin retail operating income represented 6.2 per cent of total operating income in Macau for LVS in the first half of 2014 and 11.6 per cent in the second half of 2014. ‘We believe that LVS is best positioned for controlling expenses, today. Simply put, their focus on the core mass likely requires less adjustment relative to their peer group based on revenue performance,’ says the report. ‘We suspect that LVS has pushed up its mix of rooms in Macau, likely pressuring room margins but driving traffic to their facilities. Further, entering the downturn with the least amount of VIP exposure, their burden to carry excess casino labour from a 40 per cent Y-o-Y decline in VIP revenue is less acute.’ The analysts indicate the risks to their rating include a slowdown in Chinese customers to Macau, both VIP and mass, driven by a global slowdown, the influence from Beijing which could have a material impact on visitation to Macau (e.g.) visa restrictions, delays to various government approvals for the company’s Parisian project (e.g.) construction, labour, steeper impact from the smoking ban in that market, any UnionPay-related issues/restrictions, incremental regional competition (e.g.) Philippines, Taiwan, Vietnam vying for Macau’s VIP customers, and opaqueness surrounding the renewal of the company’s licence expiration. An update of the timing of the Parisian is expected, as well as further colour around chairman Sheldon Adelson’s comments in Macau recently, requesting 2,200 more rooms for a non-gaming facility.
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