After being open for just two years, the Sands Macao casino already accounts for more than half of Las Vegas Sands Corp. (LVS)'s gambling revenues. The Asian market is red hot and poised for growth—but on Feb. 6 it was harder to have visions of people throwing yuan while dancing in front of the new roulette tables in China. Investors sold the stock after the Las Vegas company's profits during the three months ended Dec. 31 came out a little disappointing.
To be sure, Las Vegas Sands managed to earn net income of $113.6 million, up 3.3% from the same period of 2005. "We delivered record operating results at both our Las Vegas and Macao properties," said COO William P. Weidner in a press release late Feb. 5.
But what's so impressive about a mere record when you'd been having visions? Las Vegas Sands' stock fell 3.3% to $100.68 per share anyway on the New York Stock Exchange Feb. 6. "We believe this (quarter's result) reflects a higher-than-anticipated table game win percentage in Las Vegas, outweighing a Macau profit that was weaker than expected," Standard & Poor's Corp. analyst Thomas Graves said in a research note. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.)
Operating income for The Sands Macao was $99.4 million for the fourth quarter of 2006, an increase of 6.5% year over year. In contrast, The Venetian in boring old Nevada had operating income that skyrocketed 72.9% to $111.8 million during the quarter.
But the casino market in Asia has only just jumped from the starting gate. Las Vegas Sands has been spending multi-billions to develop numerous projects in the region since 2002, when the Macao government ended Stanley Ho's 40-year-old monopoly and awarded licenses to international players. Opposite Hong Kong in Macao, they're opening a new Venetian this summer - and also building six other sites on their project called "the Cotai Strip," where they're working to lease retail space and develop convention related business. Nearby the Cotai Strip, there will also be a convention destination for Hengqin Island, in China's Zhuhai. In Singapore, they expect to open The Marina Bay Sands in 2009.
Rivals are already descending on the scene for a piece of the action; one example is MGM Grand Macao, a joint venture between MGM Mirage (MGM) and Pansy Ho, daughter of gambling doyen Stanley Ho. (For more see, BusinessWeek.com, 09/05/2006, "Macao Set to Trump Las Vegas in Gambling Biz.") Las Vegas Sands said it captured over 19% of the table game market in Macao during the fourth quarter.
On Feb. 6 S&P's Graves scaled back on expectations of the company's year-ahead profit from Macao, as well as on the value attached to the prospective sale of real estate on Hengqin Island in China. That brought S&P's 12-month target price on the stock to $100 from $105 per share. While that looks pessimistic at first, Graves had only recently hiked the target to $105 from $73 per share on Feb. 2.
Las Vegas Sands remains optimistic. "While we have delivered superior financial and operating results, the opportunities that lie ahead, in both the short and long term, remain significant. We believe that successful execution of our first mover advantage in Macao will create opportunities for outstanding returns," Weidner said in the press release.
No matter how investors react day-to-day, time will tell how much Las Vegas Sands will win on its gamble in Asia. (Frederik Balfour, Asia Correspondent for BusinessWeek based in Hong Kong, contributed to this report.)