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Howard Stutz

Venetian, Palazzo barely an afterthought with Macau in the mix

1 May 2014

LAS VEGAS -- There is a reason analysts spent about 40 minutes questioning Las Vegas Sands Corp. officials last week about the company’s over-the-top results in Macau.

It has to do with Confucius.

During a conference call to discuss Las Vegas Sands’ first-quarter earnings — net income of $776.2 million on a single-quarter record of $4.01 billion in revenue — analysts didn’t ask a single question about the company’s Strip resorts, The Venetian and the Palazzo.

They weren’t even curious about Las Vegas Sands Chairman Sheldon Adelson’s widely publicized war on Internet gaming.

Macau was all they cared about.

No wonder. More than half of Las Vegas Sands’ quarterly revenue — $2.02 billion — came from its Macau resorts.

Union Gaming Group principal Grant Govertsen, who is based in Macau, expects Las Vegas Sands “to outgrow its peers over the near, medium and longer terms.”

Macquarie Securities gaming analyst Chad Beynon said Las Vegas Sands is the gaming industry’s “best Asian gaming growth and cash-flow investment story.”

The conference call was a victory lap of sorts for Adelson, the 80-year-old billionaire who controls 53 percent of Las Vegas Sands through his personal and family holdings.

Adelson all but took credit for creating Macau, the world’s most lucrative gambling market, which produced a record $45.2 billion in gaming revenue in 2013 and is ahead of that total by 20 percent for the first three months of 2014. Wells Fargo Securities gaming analyst Cameron McKnight bullishly predicted Macau could reach $115 billion by 2018.

Adelson wasn’t far from the truth.

He was the first to recognize the potential of resort development in Macau’s Cotai region and encouraged others, including Wynn Resorts Ltd. Chairman Steve Wynn, to join him. He was soundly rejected.

“It was my vision. I created the Cotai Strip,” Adelson said. “Everybody thought in the past that it wasn’t going to succeed.”

Adelson joked his competition would now “cut off their right arm” to develop there.

“Today I have a warehouse full of right arms,” Adelson said. “There may be a few left arms in there.”

Adelson acknowledged Chinese tradition and attitudes toward gambling and “challenging luck,” which dates back “3,000 or 4,000 years” to the era of Confucius, the Chinese philosopher whose principles and teachings form the basis of Chinese tradition.

“I never met Confucius,” the octogenarian joked before adding that “beliefs that go on for 3,000 years are pretty hard to break.”

So it’s no surprise Las Vegas Sands isn’t slowing its Macau growth plans. The company operates 9,000 hotel rooms there. That figure will jump to 13,000 rooms by 2016, when the St. Regis hotel expansion to Sands Cotai Central and the $2.7 billion Parisian Macau are completed.

Even with other companies expanding in Macau, Las Vegas Sands will continue to maintain better than a 50 percent share of the overall hotel room market. The company controls the largest number of gaming tables, restaurant offerings, retail and entertainment venues in Macau.

Susquehanna International Group gaming analyst Rachael Rothman said the tone of Adelson and other company executives was “steady and bullish” with no hint at a slowdown in Macau’s growth prospects. She agreed.

“We believe Las Vegas Sands is well positioned to continue to capitalize on the growth and profitability in the mass market segment given its market-leading room count, (gaming) position count and the continued infrastructure improvements built by the Chinese government aimed at increasing visitation to Macau,” Rothman said.

Adelson discussed some of the new ways to reach Macau. The massive Hong Kong-Zhuhai-Macau bridge is expected to open in two years, which will allow a 20-minute automobile commute from the Hong Kong International Airport. He also would also not be surprised if Macau ends up with a second international airport.

“It was my vision to create the footprint that I thought was necessary and achieved critical mass,” Adelson said. “We have done that.”

There seemed to be little concern among analysts that revenue declined 7 percent for Las Vegas Sands’ two Strip resorts in the quarter ended March 31, or that revenue declined 4.7 percent at the company’s Sands Bethlehem in Pennsylvania.

The most telling comment about the company’s prospects came from Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski.

“In the end, we continue to contend Las Vegas Sands is a core name to own in every investors’ portfolio, not just those looking for gaming industry exposure,” Wieczynski said.