Evaluating the Bull Case / Addressing Bear Concerns
Investment Thesis: Given our expectations of a strong sequential growth story in Singapore and the positive long-term trajectory of Macau, we see limited downside to our Base Case ($36) and believe LVS’s risk-reward continues to skew favorably to our Bull Case ($43).
Our view continues to skew towards our Bull Case. We believe reasonable assumptions for new-market penetration, OpEx, and spend per room could add $200-400 mn to our Base-Case Singapore EBITDA estimate of $1.3 bn in 2012.
What’s New: Given LVS’s strong stock performance, we thought it would be helpful to (1) evaluate investors’ top Bear concerns, (2) re-analyze the Singapore market, and (3) provide support for our Bull-Case estimates. We summarize the top investor concerns below:
(1) What is the size of the Singapore market? We project a $5.5 bn gaming market in our Base Case and support our Bull-Case estimate ($7 bn) with a detailed analysis of regional disposable incomes. We believe India could add $1 bn+ of incremental gaming revenue.
(2) How much will non-gaming contribute to MBS; (3) are 50+% EBITDA margins sustainable? We believe hotel / retail will generate $275 mn of EBITDA and offset potential margin degradation from junkets.
(4) Is government intervention in Singapore likely?
With foreign visitation up significantly, substantive regulatory changes to the Casino Control Act six months into operations are unlikely, in our view.
(5) What about Macau? The long-term mass growth story remains intact and near-term expectations are realistic (and beatable), in our view.
What’s Next: Following the release of above- consensus 3Q results in Singapore, Macau, and LV, we expect consensus to continue to move towards our Street-high Singapore estimates.