Las Vegas Sands Corp.: Raising Singapore Estimates; Price Target to $36
Overweight
We reaffirm our Overweight rating, increase our estimates for Marina Bay Sands Singapore (MBS), and up our year-end 2010 price target to $36 from $32. Our price target increase is based on our positive estimate revision for MBS (our target multiples are unchanged). We believe that Singapore upside will continue to drive the stock higher and struggle to find a more attractive secular growth story in our coverage universe.
· The Skinny on Singy. Based on our checks, aggregate gaming volume in August at MBS showed sequential improvement over July's volume. However, our sense is that lower than average table hold impacted both months. Assuming normal hold, we believe MBS’s casino is likely currently run rating an impressive ~US$100m of EBITDA per month (or $1.2b per year). Our 3Q10 EBITDA estimate goes up slightly to $215m (from $190m), even with lower than normal hold. Our 4Q10 EBITDA goes to $255m from $245m. Our 2011 MBS EBITDA estimate goes to $1.1b (from 964m) and our 2012 goes to $1.29b (from $1.1b). These revised estimates are driven by higher casino spend / ramp levels and an unchanged view from its non-gaming offerings (i.e., hotel, convention, and retail—all of which could provide future upside to these new property level estimates). Our 2011 and 2012 estimates assume that MBS accounts for 45% of the Singapore gross gaming market, implying that the Singapore market can reach ~US$5.0b in 2011 and US$5.5b in 2012—estimates that are not aggressive, in our view. A US$7.0b market (assuming no change in MBS’s market share), could conceivably add another $400m+ of property level EBITDA or another $7 in equity value per share that is not reflected in our $36 price target.
· Macau update: In Macau, our estimates remain unchanged, though through our checks, we believe that for the first two months of the 3Q, LVS’s Macau operations (Venetian, Sands, Four Seasons casino and excluding losses from the Ferry operations) generated ~US$100m of EBITDA per month in the aggregate, implying that there is some upside potential to our modeled $271m for the 3Q (though September should be the seasonal low month in the 3Q). We will revisit this 3Q EBITDAR estimate once we have a better sense of September market wide revenues, market share trends, segment mix, and hold issues. We don’t believe that investors are expecting another $300m+ EBITDA quarter for LVS’s Macau properties.
· Our year-end 2010 price target of $36 is based on multiples of 10.0x 2012E LV EBITDAR, 15.0x 2012E Macau EBITDAR (adjusted for 70.3% interest), 15.0x 2012E Singapore EBITDAR (in line with Macau), 15.0x Sands China royalty fees, and 90% of 8.0x our 2012E PA EBITDAR, less 2012E year-end net debt, discounted back one year at 10% per year. This valuation is consistent with its LV/Macau-centric peers’.
· At current levels, LVS trades at 17.8x 2010E EV/EBITDA, 13.5x 2011E EV/EBITDA, and 10.3x 2012E EV/EBITDA relative to its historical EV/EBITDA range of 4.0-57.7x and below its historical forward year EV/EBITDA average multiple of 24.5x.
· Risks here relate to: 1) U.S. investor sentiment swings related to equity valuation swings in the global equity markets; 2) potential restrictions relating to Macau travel or other government policies that would be aimed at curbing market growth; 3) a slower-than-expected ramp of its Singapore property; and 4) a meaningful consumer slowdown in Asia or the U.S.
· Our Overweight rating on LVS is based on our view that 1) Singapore can achieve solid out-of-the-box EBITDA returns, 2) Macau will continue to generate meaningful EBITDA growth, and 3) LVS will generate relatively stronger LV Strip results compared to its peers given its convention focus and solid position within the Asian baccarat segment. |
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