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Sluggishness among VIP gamblers is one of the primary reasons cited for the 2019 dip in Macau gross gaming revenue (GGR). But if that trend lingers into 2020, Las Vegas Sands Corp. (NYSE:LVS) is well-positioned to withstand that softness, says an analyst that covers the company.
On the back of mass market sturdiness, Las Vegas Sands could be 2020’s top Macau stock. (Image: TripSavvy)
LVS, the operator of five casinos on the peninsula, is widely viewed as the region’s leading player when it comes to capturing mass and premium mass market revenue. That’s a favorable trait at a time when revenue from those demographics is growing in Macau, said Stifel analyst Steven Wieczynski in a recent note obtained by Casino.org.
Given our expectation for continued outsized growth within Macau’s mass market gaming segment, we continue to favor exposure to Macau’s most dominant mass market player, LVS,” said Wieczynski.
On Wednesday, the Special Administrative Region’s (SAR) Gaming Inspection and Coordination Bureau (DICJ) said GGR there slid 13.7 percent last month, the worst monthly showing since March 2016, while the 2019 annual figure dipped 3.4 percent.
Entering 2020, analysts were forecasting a drop in VIP turnover on the peninsula for the third straight year. Premium players accounted for 55 percent of GGR in Macau in 2018, a tally expected to decline to 46 percent for 2019 and 42 percent this year.
A Marvelous Mass Market Idea
Shares of Sands jumped 10 percent last month and finished 2019 slightly ahead of the S&P 500, as trade tensions between the US and China ebbed. While concerns remain about Beijing’s ability to keep GDP growth at six percent or higher this year, Wieczynski isn’t deterred in his bullish outlook on LVS.
Although we expect lingering Chinese macroeconomic uncertainty to elevate trading volatility in the near-term, we see nothing out there at this point capable of tempering our long-term enthusiasm on the name,” said the analyst. “We believe LVS’ unrivaled scale and investments for the future position its Macau business to remain a leader in the world’s premiere gaming market for the foreseeable future.”
For this year, Wieczynski’s estimates for Macau GGR range from a decline of one percent to an increase of four percent. He notes that consensus forecasts call for an approximately 10 percent drop in VIP turnover while mass market revenue is expected to surge 15 percent.
‘A Level Of Safety’
LVS, the operator of the Plaza Macao, Sands Macao, and Venetian Macao, depends on the SAR for about two-thirds of revenue in any given quarter. But a significant percentage of that turnover comes from mass players and non-gaming sources, confirming the company isn’t as reliant on VIPs as some of its rivals.
The company is also buoyed by one of the industry’s strongest set of financials, potentially making it one of the safer gaming investments.
“Additionally, the company’s impeccable balance sheet not only adds a level of safety and security to the story, but also favorably positions the company to successfully pursue any global integrated resort development opportunities of size that come along in the future, in our view,” said Wieczynski.
The analyst added that there’s “limited risk” to Sands’ dividend and share repurchase programs, which are among the highest in the industry.
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