Las Vegas Sands
For the quarter ended Dec. 31st, 2012, Las Vegas Sands’ net revenue jumped around 21%. The increase in gaming volumes in Macau resulted in a 43% jump in the profit from the region. Although recently, Macau gaming has seen some softness, January 2013 gross gaming revenue (GGR) comps showed a growth of 7% due to the flat VIP win. But I feel that in February, celebration of the Chinese New Year will improve the region’s performance in the short-term. The future demand growth should be driven by continued expansion, and improvements to infrastructure across China and Macau, and also by China’s GDP growth rate of 8%.
With no new competition coming for at least the next two years, Las Vegas Sands’ position in Macau seems strong. The company should benefit most because it is well exposed in the region. It owns around 38% of the total hotel rooms, and maintains 26% of total tables in Macau. The recent trend also shows that while VIP wins were flat, the mass wins accelerated 29% in Macau. To capitalize this opportunity, the company is planning to change the focus of the Four Seasons Hotel towards the premium mass segment, by converting some of its VIP tables to premium mass ones. It could potentially offer more profitability, given the premium mass’s significantly higher margin of 40%, as compared to 10% for VIP.
Furthermore, moving away from the VIP segment reduces the impact of risks associated with the VIP business. The Four Seasons is ideally designed for premium mass, given its luxury hotel rooms, amenities, restaurants, and retail mall. Additionally, the company has also added new rooms to its properties in Macau, and has also obtained approval to add around 200 new tables in the region to cope up with the growing demand.
Macau’s performance was somewhat offset by a weaker performance by properties in the Nevada region, but the last month of 2012 saw a recovery, which indicates the possibility of an upward trend in the future. Looking at the future plans of the company in Macau, my take on this stock is it’s a buy.
What’s in it for investors?
W&T Offshore may have the advantage of more than expected initial production from its fifth well in the Gulf of Mexico. Also, it may have discovered a new reservoir, but the drag of underperformance of its onshore wells brings down the overall profitability of the company. For me, at the current price level, W&T Offshore is a hold.
Campbell Soup, with its improving soup business, along with the baking and snack segment, could help the company in the short-run. But in the long-term, the reduction in marketing and selling costs will hinder the performance of the company. I remain neutral on the company as an investment.
As for Las Vegas Sands, the changing paradigm of Macau, and the company’s ability to adapt accordingly, strengthens my faith. Also, the signs of improvement in Nevada’s gaming industry bode well for the future growth of the company.
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