Future Of Las Vegas Sands Corp. (LVS) And Wynn Resorts, Limited (WYNN)
For both Las Vegas Sands Corp. (NYSE:LVS) And Wynn Resorts, Limited (NASDAQ:WYNN), Macau is a key region. The Chinese Government has tightened their noose around the gaming community in the region to grab those involved in money laundering. In the last several quarters, the two companies’ performance has been greatly impacted by the region. Every time these companies report their quarterly numbers, there is a sense of belief that the market in Macau has bottomed out. However, the reality does not support the belief. Recently, Steve Wynn expressed his displeasure over the regulation and delay in getting a response from the government. Nomura believes that Macau has yet to bottom out. Therefore, it is a natural question as to what hold future for these two companies.
Wynn Expresses Frustration
Wynn Resorts, Limited (NASDAQ:WYNN) is planning to open a resort in Macau next year. Its Chairman and CEO, Steve Wynn, has expressed his frustration recently with the failure of the government to indicate the number betting tables that the establishment would allow them to operate. The new resort will have 1,700 rooms and cost approximately $4.1 billion for the company. He did not mince any words in lashing out at the Chinese Government’s ‘preposterous’ policy in respect of allocating gambling tables. The company has already been facing the pressures of corruption crackdown, as well as, the slowing economy that continued to play truant in revenue generation from the region.
Reacting to the recent measures, Wynn Resorts, Limited (NASDAQ:WYNN)’s CEO wondered how he could underwrite the job security of the domestic workmen in the region. That apart, the company needs to keep the promotion promises and offer a better opportunity. He said that it was natural that his employees would expect an answer on these. However, he expressed a loss to answer any of the questions in the absence of the clarity from the Macau region. He pointed out that net revenues dropped 38% in Macau in the third quarter alone as VIP gaming turnover drifted down by more than 50% to $12 billion.
Brokerage Raises Concerns
Recently, Nomura’s Harry Curtis, as well as his team, express concerns particularly about Las Vegas Sands Corp. (NYSE:LVS). Currently, the brokerage has rated the stock as Neutral and indicated limited upside from the current levels pointing out the weakness in Macau’s supply and demand. Curtis believes that the situation could run through in 2017. Though the company has reduced its estimates for the next year, the analyst believes that it still remains high due to imbalance. The brokerage expects room supply to increase 35% next year in Macau whereas it projects 5% growth in the visitors next year based on the current demand trends, as well as, government concerns. Curtis said that this was the biggest unfavorable differentials in the long history of the region. Therefore, the brokerage pointed out that pricing drop whenever there is a big gap.
Nomura said that the capacity growth has come at the wrong time, especially when the value per customer was recording a drop. In a gold week, GGR/visitor witnessed the weakest YTD. Normally, the period witnesses hectic activities. That again is a bad sign for Las Vegas Sands Corp. (NYSE:LVS), as well as, Wynn Resorts, Limited (NASDAQ:WYNN). The worst part is that there was a difference of over $100 between Studio City’s net rate and Las Vega Sands. Curtis said that the gap should be narrowed, and that would mean $180 million more in EBITDA next year for Las Vegas Sand.
Policy Relief To Boost Tourism
Nomura said that the hopes rest on policy relief to increase the tourism segment. The brokerage expects that it would be gauged until Macau’s infrastructure becomes operational probably in 2017. That would also mean accommodating 12 million incremental visitors required to fuel double-digit growth for the new resorts. Curtis said that Las Vegas Sands Corp. (NYSE:LVS)’s EPS, EBITDA, and free cash flow would remain stagnant for two or more years. It might be different for Wynn Resorts, Limited (NASDAQ:WYNN) as it expands its capacity next year.
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