View stunning SlideShares in full-screen with the new iOS app!Introducing SlideShare for AndroidExplore all your favorite topics in the SlideShare appGet the SlideShare app to Save for Later — even offline
View stunning SlideShares in full-screen with the new Android app!View stunning SlideShares in full-screen with the new iOS app!
MORGAN STANLEY RESEARCH October 13, 2010 Investment Perspectives — US and the AmericasCompany AnalysisOctober 11, 2010 Stock Rating: Overweight Reuters: LVS.N Bloomberg: LVS USLas Vegas Sands Price target Shr price, close (Oct 8, 2010) $36.00 $37.30Evaluating the Bull Case; Mkt cap, curr(mm) 52-Week Range $34,586 $37.37-12.95Addressing Bear Concerns Fiscal Year ending 12/09 12/10e 12/11e 12/12eMorgan Stanley & Co. Mark Strawn ModelWare EPS($) 0.08 0.69 1.19 1.42Incorporated Mark.Strawn@morganstanley.com P/E 181.5 53.8 31.3 26.3 Amir Markowitz Consensus EPS($)§ 0.07 0.66 1.10 1.61 Amir.Markowitz@morganstanley.com § = Consensus data is provided by FactSet Estimates. e = Morgan Stanley Research estimatesWe believe LVS’s risk-reward continues to skew favorably Price Performancetoward our Bull Case of $43. We believe reasonable as- Las Vegas Sands Corp. (Left, U.S. Dollar)sumptions for new-market penetration, OpEx, and spend per 160 Relative to S&P 500 Index (Reported Basis) (Right) 350room could add $200-400 million to our Base Case Singapore 140 300EBITDA estimate of $1.3 billion in 2012. Given our expecta- 120 250tions of a strong sequential growth story in Singapore and the 100positive long-term trajectory of Macau, we see limited down- 200 80side to our Base Case ($36) and reiterate our Overweight 150 60rating on LVS. 100 40 20 50Given LVS’s strong stock performance, we thought it would be 0 0helpful to (1) evaluate investors’ top Bear concerns, (2) 06 07 08 09 10re-analyze the Singapore market, and (3) provide support for Source: FactSet Research Systems Incour Bull Case estimates. Below we summarize the top con- Company Descriptioncerns, and on the following page we further detail our thoughts. Las Vegas Sands owns and operates integrated casino resorts, primarily MICE-based, in the US and Asia. The company owns and operates The Venetian and The Palazzo in Las Vegas, NV; the Sands Macao, The(1) What is the size of the Singapore market? We project a Venetian Macao, and the Four Seasons Macao; and Sands Bethlehem in$5.5 bn gaming market in our Base Case and support our Bull Bethlehem, PA. LVS currently is developing Marina Bay Sands, an in- tegrated resort in Singapore, and additional properties on the Cotai StripCase estimate ($7 billion) with a detailed analysis of regional in Macau.disposable incomes. We believe India could add $1 billion+ of Industry View : In-Line — Gaming & Lodgingincremental gaming revenue. We have an In-Line industry view following strong YTD performance. We are more bullish than consensus on Singapore, believe in the long-term growth profile of the Macau mass market, and see select opportunities in(2) How much will non-gaming contribute to MBS; (3) are the US regional markets, but do not forecast a meaningful recovery in Las50+% EBITDA margins sustainable? We believe hotel / Vegas until 2011.retail will generate $275 million of EBITDA and offset potentialmargin degradation from junkets. We derive our $36 price target using a sum-of-the-parts analysis, supported by a DCF analysis (assuming 10% WACC(4) Is government intervention in Singapore likely? With and a 4.5% terminal growth rate to account for high exposure toforeign visitation up significantly, substantive regulatory Asian markets.) We apply a 14.0x EV/forward EBITDA multiplechanges to the Casino Control Act six months into operations to LVS’s Macau operations, which we believe is justified givenare unlikely, in our view. the recent IPOs of Wynn Macau and Sands China at similar valuations. We apply a 15.0x multiple to Singapore to reflect(5) What about Macau? The long-term mass growth story high barriers to entry and limited competition. We base theremains intact and near-term expectations are realistic (and 10.5x multiple for Las Vegas on market comps. Risks to ourbeatable), in our view. price target include (1) swings in investor sentiment and equity valuations, (2) a slower-than-expected ramp in Singapore, (3) aWhat’s Next: Following the release of above-consensus 3Q deceleration in economic growth in China, and (4) governmentresults in Singapore, Macau, and Las Vegas, we expect con- intervention in Macau / Singapore.sensus to continue to move towards our Street-high Singaporeestimates. 51
MORGAN STANLEY RESEARCH October 13, 2010 Investment Perspectives — US and the AmericasCompany AnalysisLVS: Singapore Drives Range of Outcomes$ 45 Bull 13.8x Singapore $1.5bn of EBITDA; Macau $1.6bn of $43 (+15%) Case 2012 “Bull” EBITDA; FS units sell 40 $ 37.30 $43 EBITDA MBS earns 52% gaming market share in Singapore 35 $36.00 (-3%) Macau mass-market revenue grows at a 18% CAGR through 2012 30 Four Seasons apartment-hotel units are sold at $750 $28 (-25%) per SF 25 Base 13.8x Singapore $1.3bn of EBITDA; Macau $1.5bn of 20 Case 2012 EBITDA; No FS sales 15 $36 “Base” MBS earns 47% gaming market share in Singapore EBITDA Macau mass-market revenue grows at a 15% CAGR 10 through 2012 No Four Seasons apartment-hotel sales 5 Bear 12.8x Singapore $1.0bn of EBITDA; Macau $1.3bn of 0 Case 2012 EBITDA; No FS sales Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 $28 “Bear” MBS generates $980m of fully-ramped EBITDAR Price Target (Oct-11) Historical Stock Performance Current Stock Price WARNINGDONOTEDIT_RRS4RL~LVS.N~ EBITDA Macau valuation multiple lowered to 13.0x from 14.5x forward EBITDA; Singapore valuation multiple lowered to 13.0x from 15.0x No Four Seasons apartment-hotel salesSource: FactSet, Morgan Stanley Research estimates.Key LVS Investor Concerns and Our ResponsesINVESTOR CONCERN OUR RESPONSEWhat is the long-term growth story? The We believe penetration into new target markets, in combination with regional economic growth,Singapore gaming market clearly is bigger will support a long-term growth story in Singapore. We project a $5.5 bn gaming market by 2012than original estimates, but there is no guar- in our Base Case (+20% growth) and a $6.9 bn market in our Bull Case. The key difference betweenantee the market grows from its current our Base and Bull cases is the ability of the operators to extend their international marketing networksrun-rate. and penetrate new markets, most notably India. Long term, we believe the Indian market can account for $1bn+ of incremental gaming revenues (and ~$400 million of EBITDA) in Singapore. We support our market estimates with detailed target-market-by-market visitation and spend-per-visit assumptions, contextualized with assumed gaming spend as a percentage of regional disposable incomes. We believe this approach should be more helpful to investors rather than blindly extrapolating growth rates in Singapore and the sell-side tradition of simply reiterating management comments disguised as “channel checks.”Will Singapore’s non-gaming segment We continue to believe that consensus underestimates the non-gaming EBITDA contribution atthrive, or will it underperform similar to Marina Bay Sands (“MBS”). Unlike Macau, we expect the non-gaming segments to ramp quickly andnon-gaming in Macau? be a margin driver in Singapore. We expect the hotel and retail segment to generate ~ $275m (20%) of our $1.3bn EBITDA estimate by 2012, providing incremental medium-term growth. We note that higher “other” spend per occupied room estimates could add $100 million to our Base Case EBITDA estimates. We note that our existing spend per occupied room assumption (ramping into the low $200s in 2012) is slightly higher than Macau and Las Vegas levels but below early results at MBS to date.Margin sustainability? While 50+% We believe our EBITDA margin assumption (53% in 2012) for MBS is achievable and supportedEBITDA margins have proven achievable in by relatively conservative OpEx assumptions.the short-term, can they be sustained in the (1) Low junket commissions and low gaming taxes should drive sustainable casino department marginslong run, especially as junkets enter the in the 45-50% range. In addition, we believe the ramp in non-gaming margins (70-80%) will offsetmarket? potential margin degradation from the entrance of junkets (~15% of our rolling-volume estimates by 2012.) (2) Our Base Case assumes MBS will be significantly more expensive to operate ($1.9 mn of OpEx per day in 2012) than the Venetian Macao ($1.5 mn). If MBS generated OpEx in the Venetian Macao range, it would translate into $120 million of upside to our Base Case EBITDA estimate.The risk of future government interven- We believe the likelihood of meaningful government intervention is low. The Singapore gov-tion is high given the strong performance of ernment legalized the casinos and structured the tax rates primarily to stimulate foreign visitation. Withthe two casinos to date. this goal realized to-date, we believe the government is unlikely to make rash, substantive changes to the Casino Control Act (i.e. tax rates and number of licenses) less than a year into the casinos’ opera- tions.What about Macau? Shouldn’t we be con- Our (and consensus) estimates for Macau (flat sequential EBITDA growth in 2H10) are con-cerned about market share? servative and beatable, in our view. We continue to believe that market-share concerns are over- blown and that LVS will continue to benefit from the positive, long-term trajectory of the mass market. Macau accounts for 40% of our LVS price target. 52