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Inside Gaming: Adelson has optimistic outlook for Macau

10 Aug 2015

By Howard Stutz
Billionaire Sheldon Adelson remains Macau's most optimistic and vocal cheerleader.

The question is, does anyone in the investment community share the same rosy outlook as the chairman, CEO and largest shareholder in Las Vegas Sands Corp.?

After 14 straight monthly gaming revenue declines in Macau — the last six months of decreases have been above 30% — there aren't many on Wall Street with Adelson's positive view.

"We see little sign that market pressures are abating and continue to expect the competitive environment to increase," Morgan Stanley gaming analyst Thomas Allen told investors after Las Vegas Sands said results from its Macau casinos were the primary contributor to the company's 19.4% revenue decline and 30.1% drop in profits in the second quarter.

Added Wells Fargo Securities gaming analyst Cameron McKnight, "We remain neutral on Macau and believe market revenues likely remain pressured."

Adelson, however, is resilient to any notion that Macau's once flourishing gaming empire is in an out-of-control downward spiral. He called the market's current downturn "cyclical" and Las Vegas Sands would "grow and prosper" in Macau.

Las Vegas Sands has four business divisions in Macau — Sands Macau, Venetian Macau, Four Seasons Macau and Sands Cotai Central. Las Vegas Sands is expected to open a 400-room St. Regis as part of Cotai Central later this year. The company's $2.7 billion The Parisian Macao will open on another section of Cotai in "12 months," Adelson said.

"We will have almost 13,000 hotel rooms in four interconnected resorts," Adelson said on the company's July 22 second quarter earnings conference call. "We remained fully committed to playing the pioneering role in Macau transforming into the world's leading business, leisure, (and) tourism destination."

The results from the company's Macau casinos during the quarter that ended June 30 was viewed as "better than expected" by most analysts. Net revenue declined 25.6% while net income dipped 37%. Adelson said Las Vegas Sands' properties in Macau performed better than the rest of the industry.

The company rewarded stockholders (Adelson included) with a 65 cents per share dividend in the quarter.

"Against an extremely difficult backdrop in Macau, Las Vegas Sands reported very respectable results, surprisingly meeting somewhat stale consensus estimates," Macquarie Securities gaming analyst Chad Beynon told investors. "We believe few expected management to save the quarter."

The concern is on future periods.

The Mainland Chinese government shows no signs of slowing its crackdown on corruption surrounding the high-end junket operators tasked with bringing big spending baccarat players to Macau's ultraluxury private gambling rooms. The start of the graft cleanup coincided with the revenue downturn.

Meanwhile, there appears to be some relaxing of the visa restrictions on the number of times a Mainland resident can come to Macau, and a softened government stance on a full-smoking casinowide ban. The government now seems to favor allowing enclosed smoking lounges.

J.P. Morgan gaming analyst Joe Greff said the moves "could signal the end of a nasty policy bear-cycle." He said the Macau and Beijing governments may recognize that allowing the casinos to operate could provide "social harmony and economic stability."

Adelson, 81, currently No. 12 on the Forbes 400 with a net worth of $29 billion, showed some of his bombastic personality during the earnings call. He reminded analysts that he first envisioned casinos on Cotai and was criticized for the idea.

"Now, everybody is cutting off their arms to get into Cotai," Adelson said without naming Wynn Resorts Ltd.'s $4.1 billion Wynn Palace and the $2.9 billion MGM Cotai, being built by MGM Resorts International. Both properties are expected to open in 2016, along with Sands' Parisian.

Adelson couldn't resist getting in a dig at MGM.

"The only thing they have ever developed was CityCenter and for those of us in the United States, particularly those of us who live here in Vegas, it doesn't need any further comments," Adelson said of the once-financially troubled Strip project.

Meanwhile, Las Vegas Sands has much riding on a Macau recovery. The company relies on the market for more than 60% of its quarterly earnings.

"We remain confident that our recurring dividends will increase in the years ahead as the Macau market and our cash flow grows," Adelson said.

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