Las Vegas Sands takes hit in Singapore, shares drop

Billionaire Sheldon Adelson’s Las Vegas Sands Corp (LVS.N) disappointed investors with a lower-than-expected quarterly profit at its Singapore casino-resort, sending the company’s shares down 10%.

Sands posted first-quarter earnings below Wall Street forecasts and said lower-than-normal casino table game winnings hit its Singapore revenue by about US$30 million ($36.9 million) and its Las Vegas revenue by about US$45 million.

Hong Kong-listed shares of Sands China (1928.HK), LVS’s lucrative Macau unit, fell more than 5% on Wednesday, despite beating analyst expectations with a rise of 46.1% in quarterly adjusted earnings before interest, tax, depreciation and amortization (EBITDA)to US$378.6 million.

 

Analysts said the share price fall was due to negative sentiment over the parent company’s Singapore operations, but strong first-quarter figures and the opening of a new casino early next year would give the stock further upside.

 

Kenneth Fong at J.P. Morgan in Hong Kong said Sands China was strategically positioned for a better second half with strong mass-market growth.

 

“On top of the operational improvement, we expect to see more progress in construction of Lots 5 & 6 (Sands’ next casino project) when Galaxy Macau frees up labour gradually into its opening,” he said.    

Operator of the Venetian casino resort in Macau, the world’s largest gaming market, Sands China posted a better-than-expected property EBITDA, up 11% on the quarter.

 

Las Vegas Sands, which operates the Venetian and Palazzo resorts on the Las Vegas Strip, earns most of its money in Asia, from its newest resort in Singapore and in Macau, where allegations of malfeasance by a former executive have prompted investigations by regulators such as the U.S. Department of Justice.

 

Stellar gaming revenue in the former Portuguese colony has boosted revenue streams for Sands China and casino magnate Steve Wynn’s Wynn Macau (1128.HK), despite competition from local players such as gaming tycoon Stanley Ho’s SJM Holdings (0880.HK), which has a near one-third share of Macau’s gaming market.

 

Macau gaming revenue set a new revenue record in April of $2.56 billion, with revenue expected to dwarf that of the Las Vegas strip several times over for the year.

SINGAPORE DISAPPOINTS

But Singapore’s Marina Bay Sands, which started limited operations just about a year ago, generated adjusted EBITDA of US$284.5 million, well below the average Wall Street estimate of US$325 million.  

 

The giant iconic building is located at the mouth of the Singapore river, while Genting Singapore Plc’s (GENS.SI) Resorts World, the only other casino in Singapore, is on Sentosa island.

 

The profit margin at the Singapore resort was 48.6%, down from 54.6% in the fourth quarter of last year. 

 

“Everybody is freaking out about the Singapore margin,” said Hudson Securities analyst Robert LaFleur. “"They are generating a phenomenal amount of EBITDA, but the question is we are going through the first year trying to figure out the true profit potential of that market.”

 

The US$5.5 billion Singapore Sands, the world’s second-most expensive casino resort after MGM’s CityCenter in Las Vegas, held its official opening in February and company officials said at the time that it had already attracted 11 million visitors. 

 

Unlike other gambling jurisdictions, including Macau and the U.S. state of Nevada, the city-state does not announce monthly gambling revenue totals, making it more difficult for investors to gauge the market.

 

“There is nothing whatsoever that makes us think margins will decrease,” Adelson said on a conference call. 

 

In Las Vegas, Sands posted adjusted EBITDA of US$65.2 million, which was also short of analyst estimates, as strong group meeting and convention business was offset by a low rate of casino winnings at table games.

 

Adjusting for one-time items, the casino operator earned 37 cents per share in the quarter, short of an average estimate from analysts for 44 cents for share, according to Thomson Reuters I/B/E/S.

 

The company reported a quarterly net profit of US$228.2 million, or 28 cents per share, a year earlier. 

 

Overall net revenue for the quarter totaled US$2.11 billion. Analysts had expected a tad more, or US$2.14 billion.

 

Sands shares closed at US$45.87 in New York and were lower at US$41.44 in after hours trading.