Las Vegas Sands also recently received government approval to add 200 gambling tables to its resorts, which boosts Sands’ total tables by 15% to 1,350 in Macau. Analysts believe that this increased room capacity could generate more than $500 million in additional annual revenue.
Higher room and table capacities still make Las Vegas Sands the strongest foreign casino operator, despite the regional slowdown. Macau’s growth still outperformed its Singapore property, the Marina Bay Sands, which reported an 11% slowdown in revenue.
A Wild Card: Chinese Government Intervention
Analysts have always wondered how far the Chinese government would let Macau’s gambling business grow before it began cracking down on the region’s vice-fueled profits. That question was recently answered, after the Chinese government announced that it plans to start a crackdown on casino junket operators, special services that cater to Chinese VIP gamblers, arrange credit, and collect debts.
The effort was spearheaded by Chinese president-in-waiting Xi Jinping, as part of a sweeping anti-corruption campaign. The investigations are scheduled to start after Chinese New Year, which ends on Feb. 17. Chinese authorities believe the junkets, which ferry the VIP gamblers from China to Macau, help siphon illegal funds out of the country.
Although this crackdown is not aimed directly at the casinos, which are legal licensed businesses, the intervention is a wild card that has kept investors away from the gambling industry.
The Future: Adelson’s European Legacy
Although Sands currently depends completely on Asia, the company’s final frontier is Europe – where no company dares to expand due to the unending negative feedback cycle of the sovereign debt crisis. Adelson’s multibillion-dollar “EuroVegas” casino resort was recently approved for construction in Alcorcon, Spain, a suburb of Madrid.
EuroVegas will be the size of 750 football fields, consist of 12 hotels, six casinos, three golf courses, a convention center, theaters, shopping malls and restaurants. It will cost an estimated $29.5 billion. Will Alcorcon be the next Macau? If Spain, which suffers from 26% unemployment and one of the worst debt levels in Europe, can recover within the next two decades, then it very well could be.
The Bottom Line
Las Vegas Sands is still the best of the breed in the casino industry. Sheldon Adelson had the foresight to divest from Las Vegas and expand into Macau and Singapore long before his rivals did, and shareholders have been well rewarded.
Today, many people still doubt the sustainability of its Asian business and the viability of the company’s ambitious plans in Europe.
However, if the company’s past decisions are any indication of the company’s future growth potential, then the stock, trading at 17.5 times forward earnings with a 5-year PEG ratio of 1.5 at the time of this writing, is a bargain at today’s prices.
The article The Past, Present and Future of Las Vegas Sands originally appeared on Fool.com and is written by Leo Sun.
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