by Sergiu Lisnic, CFA
Associate: Victor Sula, Ph.D.
March 9, 2005
LAS VEGAS SANDS CORP., NYSE: “LVS”
Rating: Maintain at Buy
Price Target: $60.15
Financial Summary US$ ’mn 2003A 2004A 2005E 2006E 2007E 2008E
52-Week Range $41.41/ $53.98 Net revenues 692 1,197 1,532 1,749 4,147 4,750
Recent Price (3/08/05) $47.35 Operating income 186 618 364 386 1,030 1,272
Market Cap $15,671 Mn Net income (loss) 67 495 226 167 751 1,011
Shares Outstanding 331.0 Mn Cash and equiv. 153 1,557 477 551 994 1,944
Float 27.38 Mn Total Assets 1,917 3,952 5,109 7,280 8,056 8,950
Avg. daily vol. (since IPO) 1,328,448 Long-term debt 1,566 1,940 2,209 4,079 3,835 3,598
Insider Holdings 93.20% ROA 3.8% 16.4% 5.0% 2.7% 9.8% 11.9%
FY04 revenues $1,197.1 Mn ROE 4.4% 25.9% 10.4% 4.1% 19.8% 28.4%
Fiscal Year-End 31-Dec EPS, diluted $0.20 $1.52 $0.65 $0.47 $2.10 $2.80
Book Value (per share) $4.98 PE 232.3 31.3 73.2 100.1 22.5 16.9
Source: Yahoo Finance, SEC filings, analyst estimates.
We are reiterating our Buy rating on LVS with a recalculated DCF-based price target of
$60.15. During its first full quarter as a public company LVS managed significant increase
in revenues YoY and is going ahead full speed with its developmental projects in Las Vegas
(Palazzo to be opened in spring ’07, although the convention center may open not until mid-
‘06) and in Macau (Macau Venetian to be opened in spring ’07 & other casinos under
management on the Cobai strip). Furthermore, the company has announced exciting
projects in the UK (in consortium with Sheffield United and Glasgow Rangers soccer clubs),
as well as continuing interest and opportunity in Singapore and Thailand. A number of US
projects are in various stages of development.
The long-terms prospects for the company continue to look solid and our DCF model shows a
potential share price increase of 27% over the next twelve months. We believe that LVS’s size
is only a fraction of what it will become in a few years from now. Even though, the short-
term performance is hard to predict and may fluctuate, we are confident in the “mega-
capacity” business model of LVS and the viability of the chosen locations. We believe the
company is taking gaming to the next level and sets itself aside from competitors by the
sheer size and scale of its operations that contribute to additional leverage and efficiencies.
LVS name and reputation allows it to open doors in international locations and create new
gaming venues worldwide. With the upcoming UK gaming legislation and LVS casino
projects in Scotland and England, the company is embracing the European gaming market
– yet another gaming market after the US and Asia. We believe that the current share price
is below the discounted future cash flows of the current projects. Additional projects such as
the ones in UK or Singapore will increase the value of company stock even further.
3/08/2005 TICKER M CAP SHARE P/E P/S P/E P/S P/E P/S
COMPANY NAME SYMBOL $ mn PRICE CAL05 CAL05 CAL06 CAL06 CAL07 CAL07
LAS VEGAS SANDS LVS 15,671 $47.35 73.2 10.2 100.1 9.0 22.5 3.8
HARRAH'S ENTMT HET 7,589 67.72 18.6 1.4 16.8 1.2 - -
MGM MIRAGE MGG 10,314 73.77 27.8 2.1 21.7 2.2 - -
WYNN RESORTS WYNN 6,544 72.29 168.1 8.9 61.3 5.0 - -
Peers average 71.5 4.2 33.3 2.8 - -
Industry average 29.2 3.4 21.4 2.1 - -
Premium (discount) to peers 2% 146% 201% 218% - -
Premium (discount) to Casino & Gaming industry 151% 205% 368% 329% - -
Source: Baseline, Yahoo! Finance, Analyst Estimates
As done in the initiation report, we are only employing the DCF approach to valuation despite the fact that
LVS is currently producing revenues, in many respects significant projects are still under
development in both Las Vegas and Macau.
Risk Premium 4.5%
Risk Free Rate 4.5%
Cost of Equity 11.3%
Expected Long-term Equity Weight 80.0%
Weighted Cost of Equity 9.0%
Cost of Debt 7.5%
Long-term Tax rate 41.8%
Tax Effected Cost of Debt 4.4%
Long-term Debt Weight 20.0%
Weighted cost of Debt 0.9%
Terminal growth 7.0%
'000s USD FYE05 FYE06 FYE07 FYE08 FYE09 FYE10
EBIT (1-T) 211,875 224,441 599,707 740,491 851,565 953,752
Dep & Amort 79,307 150,194 288,007 307,645 315,336 320,638
(-) Cap Ex (2,200,000) (2,200,000) (400,000) (200,000) (250,000) (250,000)
(-) Changes in Working Capital 2,989 56,259 96,444 19,488 (75,000) (75,000)
Free Cash Flow (1,905,830) (1,769,106) 584,157 867,624 841,901 949,391
Terminal Value 35,358,438
Fair Value Target price
Discounted Cash Flow
today end of FY05
DCF stream (1,098,859) 698,480
DC terminal value 20,097,738 22,081,987
Total DC Enterprise Value 18,998,879 22,780,468
(Less) Net Interest Liabilities 549,711 1,731,440
Equity Value 18,449,168 21,049,027
Equity Value Per Share $55.75 $60.15
Our new price target is slightly less than the one in the initiation report due to a change to the financial model
and more gradual development of the Sands Macau property.
Business Development Activities
During 2004, LVS continued pre-development activities worldwide in a variety of jurisdictions considering
enacting or expanding gaming legislation. LVS made proposals and entered into development agreements to
construct gaming-based mixed use real estate developments in the United Kingdom. LVS has signed
agreements with two major soccer clubs in the United Kingdom – Glasgow Rangers and Sheffield United and
there are rumours that it is also in talks with Manchester and Birmingham. LVS management believes that
the new gaming legislation in the UK will be voted on April 7th 2005. Therefore, in addition to the existing US
and Macau markets, LVS is entering another very lucrative market. As discussed in the initiation report, UK
is the second largest gaming market in the world. The new proposed legislation is removing a number of
major restrictions that affect the gaming companies, which is likely to create the foundation for further
market growth and expansion. Moreover, the United Kingdom can become a favoured destination for the
European gambler, due to its geographic location. Smaller than Asia in terms of population, Europe is more
affluent, and is therefore an interesting international opportunity.
The company continues to explore possibilities in certain existing and emerging US gaming jurisdictions,
including Pennsylvania (casino on a 140 acre piece of land), Massachusetts (dog race track), Detroit and the
New York State.
LVS is willing to participate in Singapore Government’s Project for a mixed use gaming, convention and
entertainment development. LVS anticipates that the Singapore Government will decide by April 15, 2005
whether or not to move forward with gaming legislation. Should the concept submitted by LVS be successful,
it could become the leader in the development of the Singapore gaming infrastructure.
LVS is also working to expand its existing properties Sands Macau and Venetian. The company is in the
process of adding upscale suites and two theatres at the Venetian to attract more high-end gaming revenue
and to capture an increased share of customer spending for theatre attendance among other improvements.
In addition, LVS continues the construction of the hotel casino Venetian Macau on the Cotai Strip in Macau;
and of the Palazzo Casino Resort on the Las Vegas Strip. The Macau Bridge is currently going ahead with two
possible “landing” options, both of which would favour LVS casinos.
Furthermore, the Macau properties continue to see increased traffic from mainland China. The central
government is taking actions that facilitate travel to Macau. So, under the FIT program, more and more
Chinese become eligible to travel to Macau and Hong Kong without a visa. LVS management stated that the
most recent enactment allowed residents of two more cities with a combined population over 46 million
people to travel under the FIT program.
Other Investment Highlights
• Strong revenue growth. Revenue increased 73% during FY04 mainly revenues due to Sands Macau
Casino opening on May 18, 2004 in Macau, China and increased hotel and casino revenue at the Venetian.
For the Q4FY04 revenue doubled since Q4FY03.
Q4FY03 Q4FY04 % chg FY03 FY04 % chg
Revenue, $ Mn 173 348 100% 692 1,197 73%
Operating Margin 22.4% 25.7% 3.4% pts 26.9% 51.7% 24.8% pts
Net Margin 4.4% 19.9% 15.5% pts 9.6% 41.4% 31.7% pts
Operating margin* 22.4% 26.1% 3.8% pts 26.9% 19.4% -7.5% pts
Diluted EPS, $ $0.02 $0.21 $0.20 $1.52
Pro forma Diluted EPS, $ $0.01 $0.16 $0.12 $1.04
*excluding the impact of Grand Canal Shops mall sale
The actual results for the last quarter of FY04 fell below our expectations; however, part of the reason was
the pace of opening and development at the Macau property. An additional lounge with 17,000 square feet of
gaming space was added early 2005 instead of Q4FY04 as expected by us. In fact, management decided not
to provide guidance because LVS is a development stage company with a number of operations in new
jurisdictions and with limited history. For example, because of the local habits during the celebration of a
New Year, the months of January and February provided the company with a few surprises. Also, the overall
Macau market seems to be heavily skewed towards higher stakes gambling with an increased emphasis on
table games and lower role of the slots.
• Significant improvement in profit margins. Both the operating and the net margin improved
significantly during FY04, however they were influenced by the sale of the Grand Canal Shops mall ($417.6
million) partly offset by non-recurring incentive expenses related to the Phase II mall sale ($63.2 million).
Expenses overall were slightly higher because of several developmental projects in various jurisdictions.
• Sands Macau Casino opening and the Grand Canal Shops mall sale skyrocketed LVS’s net
income and EPS. LVS reported net income of $69.3 million, $0.21 per diluted share, for the Q4FY04 and
net income of $495.2 million, $1.52 per diluted share, for the FY04.
• Conversion from a flow-through tax entity to a tax paying entity in mid-December 2004.
As a result LVS recorded a $13.7 million income tax benefit related to this conversion. As a result, LVS will
start paying a corporate tax rate of 35% on its US income. The Macau operations are exempt from all gaming
taxes through 2008.
LVS improved its position on the Las Vegas Casino market with revenue growing by 21% during Q4FY04.
Also the Macau Casino market entrance is placing LVS on the right track for significant, long-term revenue
$ Million Q4FY03 Q4FY04 % chg FY03 FY04 % chg
Venetian Casino and Resort 153.5 164.6 7% 599.4 726.2 21%
Sands Macau - 171.5 n/m - 397.2 n/m
Sands Expo and Convention Center 9.6 11.5 20% 52.9 57.7 9%
Grand Canal Shops mall 10.4 - n/m 39.4 16.0 n/m
Interestingly enough, after only 7 months in operation, Sands Macau surpassed the Venetian Casino in terms
of revenues. During Q4FY04, the Macau casino generated revenues of $171.5 million or 4% more than the
Venetian in Las Vegas. The 17,000 sq. feet expansion of the gaming floor at Macau completed in early 2005
will increase the gap even further, underlining the importance and the lucrative nature of the Macau gaming
market. Moreover, gaming-only revenues at the Venetian stood at $72.4 million, making the Macau Sands a
principal producer of gaming revenues with gambling revenue generating capacity at 240% that of the
• Sands Macau generated about 50% of LVS revenue during the Q4FY04.
In the early 2005 the Sands Macau opened the Pearl Room in space adjacent to the main lobby in the Sands
Macau, with 17,000 square feet of additional mass gaming space adding 40 table games and 180 slots. LVS
incurred additional costs during the fourth quarter associated with pre-opening activities of the Pearl Room.
$ Million Q3FY04 Q4FY04 % chg
Revenue 165.7 171.47 3.5%
EBITDAR margin 41.8% 39.2% -2.5% pts
Operating income margin 38.0% 34.8% -3.2% pts
Table games win percentage 15.7% 15.2% 0.5%
Source: SEC filings
The decrease in margins was a result of the lower win on games (50 basis points); as well as, the increased
expenses for training staff and other developmental expenses.
• Venetian Casino Resort reported significant revenue growth in the relatively flat Las
Vegas market. All Venetian Casino Resort’s segments posted double digit growth of revenue and improved
$ Million Q4FY03 Q4FY04 % chg FY03 FY04 % chg
Revenue 153.5 164.6 7.2% 599.4 726.2 21.2%
EBITDAR margin 40.7% 33.0% 7.7% pts 43.0% 41.2% -1.8% pts
Hotel Revenue 69.7 75.5 8.3% 251.4 311.7 24.0%
Occupancy rate 92.8% 93.2% 0.5% pts 96% 97% 1.0% pts
ADR 204 222 8.8% 204 220 7.8%
Casino Revenue 66.9 72.4 8.2% 272.8 321.0 17.7%
Table games win percentage 18.2% 16.1% 2.1% pts 21.00% 20.70% -0.3% pts
Food and beverage 19.3 21.4 10.1% 80.2 105.7 31.8%
Source: SEC filings
• Stronger Balance Sheet due to IPO and assets sale. LVS significantly increased its cash balance
due to following: i) The successful conclusion of it’s IPO on December 20, 2004, which raised $744 million of
equity capital, ii) the sale of the Grand Canal Shops mall on May 17, 2004 for $766 million, yielding a pre-tax
gain of $417.6 million, and iii) the additional deferred pre-tax gain of $186.4 million.
$ Mn 31-Dec-02 31-Dec-03 31-Dec-04
Cash and cash equivalents 106 153 1,295
Restricted cash 124 142 378
Long-term debt 1,344 1,525 1,790
Total Stockholders' Equity 100 162 906*
Source: SEC filings, *Analyst estimates
During February 2005, LVS redeemed $833.5 million in aggregate principal amount of its $843.6 million
outstanding principal amounts of its 11% mortgage notes due 2010. Also LVS has asked for redemption the
remaining $10.1 million. The redemption was funded with $247.0 million of proceeds from the issuance of
$250 million of 6 3/8 % senior notes due 2015, $305.0 million from LVS’ term bank credit facility, $327.3
million of IPO proceeds, and approximately $97.4 million of unrestricted cash. As a result the total interest
expense on LVS debt is smaller by approximately $72 million a year.
Stock Price Performance, LVS versus the Gambling Industry, 3 months
Sergiu Lisnic, CFA worked as an analyst for Evanston Capital Advisors for a year and a half, and subsequently served
for two years as a financial analyst with a gas distribution and a FMCG company. He was primarily responsible for
financial statement analysis, budgeting and reporting to shareholders. He earned the CFA title in September 2003.
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