Sunday, 25 May 2014

Las Vegas Sands entertainment all around

Las Vegas Sands (LVS) is the leading developer of destination casinos. As a pioneer of integrated resorts LVS has put night clubs, shows, gaming, retail shops and award winning restaurants all under one roof. Their sites have become a premier destination for many around the world. The company is called Las Vegas Sands but the majority of LVS revenues now come from Asia (see properties below). In our opinion LVS is the best way to play the rise of the Asian gambler with leading sites not just in Macao but Singapore as well.

Macao entrepreneur
LVS founder Sheldon Adelson was one of the first to realise the potential of Macao. Macao's initial problem was limited space so a major land reclamation project was carried out to join two existing islands. Calling the new area the Cotai Strip LVS had the vision to create a mini Las Vegas with shows and conventions not just gambling. The average length of stay for Chinese in Macao is 2.1 nights compared to 3.7 for Hong Kong. Their goal is to get people to stay longer and spend more money rather than just making day trips from Hong Kong.  The growth outlook would seem to have a long way to go as according to LVS below only 1.3% of Chinese visited  Macao last year. LVS has 38% market share of 4/5 star hotel market.

Another way to think about it is Hong Kong received more than twice as many visitors over the same period.

You're betting with the 8th richest man in the world
The best part about the story is Sheldon Adelson, he must be the most entertaining CEO out there, one of the richest men in the world he can say whatever he wants. Some gems from their recent quarterly call.

On the topic of executing their business plan and generating shareholder returns.

"You know my motto: yay dividends"

Another comment on the topic of shareholder returns and if they would buy back the Sands China stake which is Hong Kong listed.

Now, I'm a pretty large shareholder, but I get a boss too, called Dr. Miriam Adelson (his wife). And so, we all have bosses. But I consider all of our shareholders the boss. So, you guys are the guys that we're reporting to. We're trying hard to satisfy you. And although, I would like to buy back the – what we went public with in 2009 of Sands China and fold it back into LVS 100%. I think I'd rather take that $15 billion or $20 billion and give it out and start buybacks and dividends."

On the growth potential of the Macao market.

"I'll give you validation about this concept for Chinese people. From the time of Confucius, which was 3,000 years to 4,000 years ago, I don't really know. I never met Confucius. Nobody has been able to suggest that Chinese and other Asian peoples don't want to challenge luck. They've been wanting to challenge luck for 3,000 years and nothing, through thick or thin, tall or short, slim or fat, nothing has stopped them. And I don't think anything will. If there is a momentary blip in the road, it's like a speed bump in a private housing development, where people don't want you to drive fast, so any – look at the number that we increased VIP over last year. I mean, that's a number that's more than what the market itself has grown.

I don't understand, where people – I wish somebody could tell me – beliefs that go on for 3,000 years are pretty hard to break. And I don't know if anybody's tried for 3,000 years, but the fact that it's sustained itself for such a long period – I was talking to somebody yesterday about how long – where's the potential for supply and demand to cross? I don't know. And I think I'm a pretty smart guy. I can tell you, I don't think anybody could tell anybody with any degree of certainty where that line is going to cross. In any event, I don't see even during the result of the last great recession that we had. The market essentially – it didn't lose. I think the worst that it got was even from year-to-year in one year, and then it grew up again."

Always bet on Sheldon
There are plenty of risks the Chinese government's anti-corruption campaign has investors worried if casinos will be the next target. There has also been speculation that China will crack down on illegal fund transfers from the mainland to Macao. Other risks include supply with 8 new resorts planned to open over the next 3 years. While the anti corruption campaign is a real risk that has kept us away from the stock the integrated casinos are just as much a play on Chinese tourism. LVS is the leading destination casino developer with a billionaire founder that has the best position in Asia with a great track record. LVS have summed up their optimism in the following slide.

Disclosure: Decisive does not own a position in Las Vegas Sands (LVS) stock

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.