Sands China Ltd. – the majority owned subsidiary of Las Vegas Sands Corp. (LVS) – has received permission from the Macao government to complete the construction of its $2.7 billion Paris-themed integrated resort.
Las Vegas Sands expects the Parisian Macao — its fourth property on the Cotai Strip — to open by late 2015. The property will feature roughly 3,000 rooms and suites, gaming space, a retail mall, replica Eiffel Tower, MICE space in addition to diverse food, beverage and entertainment options.
However, the construction of the Parisian Macao has not been without setbacks. Following an accident in June, construction was suspended. However, it resumed after the company received the requisite permit from the Chinese government in August.
For Las Vegas Sands, Macao has historically been a sweet spot. Asia's economic growth in the recent years, particularly in China, has created a sizeable middle class with significant disposable income. This new generation of gamblers drives the Resorts & Casinos industry in Macao. Additionally, Macao is the only part of China where casino gambling is legal, and Las Vegas Sands commands a sizeable market share in the region.
The key to Las Vegas Sands’ success in Macao lies in gaining a huge chunk of the mass market. The Venetian Macau, Four Seasons Macao and Sands Cotai Central offer thousands of hotel rooms and space for mass-market gaming, which normally yield much higher margins than VIP gaming.
Recently, mass-market play has grown more quickly than VIP play which has been a boon for Las Vegas Sands over other casino-operators like MGM Resorts International (MGM) and Wynn Resorts Ltd. (WYNN). Moreover, the resumption of construction at the Parisian Macau is a positive for the company.
However, we are aware of the sluggish Chinese economy and the fact that high-stake gamblers are curtailing spending. Also, a nationwide crackdown on corruption in China that compelled Macao officials to impose restrictions on VIP gamblers to stop billions of dollars from being siphoned off illegally from mainland China to Macao, might hurt the revenues of the company.
Las Vegas Sands carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Penn National Gaming Inc. (PENN), which has a Zacks Rank #2 (Buy).
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