Highlights

Las Vegas Sands reports its 1QFY13 results this morning and its Singapore property, Marina Bay Sands (MBS) showed a record high in its gross gaming revenue (GGR) for the quarter at US$876.2m (Yoy: +1.24%; Qoq: +14.4%).

Yoy: Total volume increased across the board (rolling chip: +42.2%; non-rolling chip: 2.4%; slot: 1.6%) during the quarter. However, GGR turned out to be mixed due to mixed hold rate. Gross rolling chip revenue fell 0.3% from lower hold rate of 2.51% (1QFY12: 3.58%), meanwhile gross nonrolling chip revenue grew 7% as win increased by 1-ppt. Slot revenue fell 4% as slot hold decreased by 0.3-ppt.

Qoq: Gross rolling chip revenue grew by 29.7% largely due to the improvement from both volume (+10.6%) and hold rate (4QFY12: 2.14%). Non-rolling chip’s volume went up by 7.8%, bringing its revenue to a growth of 3.3% despite the lower win rate of 23.2% (4QFY12: 24.2%). However for slot machines, the volume growth of 3.6% did not managed to fully offset its lower slot hold of 5.1% (4QFY12: 5.4%), resulting in lower slot revenue (-2.2%) during the quarter.

From the conference call held earlier, management mentioned that the slot segment is still showing some weakness despite the slight growth in volume as local market have not fully recovered from the slowdown in economy last year. Majority of MBS’s VIP players are from China mainland (~70%) and Singaporean Chinese. Growth in mass volume was due to enlarged base from the entrance of new players.

As for the update on casino possibilities over in Japan, LVS’s management also shed some light, saying that the legislation could be brought to the table as early as Nov ’13 and it will take 1-2 years to get a green light. They also added that companies who stand a high change to get a license are LVS themselves and Genting Singapore.

Assuming that MBS’s rolling chip market share stays at 53%, Singapore’s VIP volume grew 36.8% yoy and 10.6% qoq respectively. Hence, we believe the overall market volume in Singapore could still be growing mildly. With that, we could foresee that GenS could also perform similarly based on MBS’s results. GenS is expected to release its results later today.

Risks

1) Regulatory risk; 2) Further decline in RWS’ market share to MBS; 3) Weaker-than-expected hold percentage in the VIP segment; 4) Worsening in economic condition; and 5) Failure in casino license renewal.

Forecasts

Unchanged.

Rating

HOLD

• Positives – (1) Duopoly industry; and (2) Lower tax rates compared to regional peers.
• Negatives – (1) Highly regulated industry; and (2) Earnings from gaming operations are highly dependable on luck factor and hold rates.

Valuation

Given that share price have run 7.8% since our last report on 25th Apr, we downgrade GenS to HOLD with unchanged TP of SG$1.58 as total returns is now less than 10%.

Source: Hong Leong - 2 May 2013