Las Vegas Sands Earnings Estimates Trimmed, UBS Analyst Expects Macau License Rebidding Delays

Posted on: June 22, 2020, 11:35h. 

Last updated on: June 22, 2020, 01:07h.

Shares of Las Vegas Sands (NYSE:LVS) dipped Monday after UBS analyst Robin Farley pared her earnings before interest, taxes, depreciation and amortization (EBITDA) estimates on the operator, citing sluggish demand in Macau – the company’s most important market.

UBS Pares Las Vegas Sands
Citing weak Macau visits, UBS analyst lowered 2020-22 EBITDA estimates on Las Vegas Sands. (Image: Bloomberg)

Farley trimmed her 2020 EBITDA forecast for the Venetian Macau operator by 30 percent and the 2021 estimate by six percent, while reducing her 2022 outlook by a more modest one percent. Those reduced outlooks jibe with Farley’s previous views that gross gaming revenue (GGR) in the world’s largest casino center will tumble 44 percent this year because of the coronavirus pandemic.

GGR in the special administrative (SAR) plunged 92.3 percent in May. That extends a string of staggering declines resulting from an array of now long-running travel controls limiting tourists’ ability to move between the gaming hub and Hong Kong, mainland China, and Taiwan.

Following a recent uptick in COVID-19 cases in Beijing, Macau is now requiring anyone entering the SAR from the Chinese capital to undergo a 14-day quarantine that’s overseen by the Macau government. Previously, the SAR mandated two-week self quarantine policies for travelers coming from China, Hong Kong and Taiwan.

M&A Chatter

On the company’s first-quarter earnings conference call in April, Chairman and CEO Sheldon Adelson overtly said LVS could be on the hunt for acquisition opportunities, be it in the form of individual properties or an entire rival company.

Farley doesn’t dispel that notion, but notes there are some moving parts that are relevant should Sands pursue bulking up in Macau.

An entity can only own one concession, so any potential combination would likely mean turning one concession back over to the government, and operating all properties under the remaining concession,” said the UBS analyst.

In a note out last month, Union Gaming analyst John DeCree floated the idea of LVS possibly acquiring rival Wynn Resorts (NASDAQ:WYNN), although Wynn executives said they’re not interested in consolidation at the moment.

While that marriage may seem like a far-flung concept, it’s sensible for Sands because Wynn Macau’s VIP clientele would augment LVS’s dominant market share of mass and premium mass players.

Concession Renewal Delays

Another potential stumbling block created in Macau by way of COVID-19 is renewal of the six concessionaires’ gaming permits.

With a change in leadership last year, it was expected the Macau government would ramp up the license renewal process in 2020 ahead of the 2022 deadline for license renewal. However, Farley sees that effort dragging into 2023 because of legislative hurdles caused by the coronavirus pandemic.

Macau’s US-based concessionaires are LVS, MGM Resorts International, and Wynn. The other three are Galaxy Entertainment, Melco Resorts & Entertainment, and SJM Holdings.

Farley has a “neutral” rating on LVS with a $53 price target. That implies upside of 13.2 percent from where the shares trade at this writing.