Las Vegas Sands Drops $10bn Japan Casino Project

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Las Vegas Sands Drops $10bn Japan Casino Project

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What Happened?

Las Vegas Sands (NYSE: LVS), the world’s largest casino company, on 13th May 2020, announced that it is dropping its pursuit of a license in Japan, ending a quest that was going on for decades for what was one of the biggest prizes in the global gambling business.

So What?

The company founded by billionaire Sheldon Adelson has been trying to expand in Japan since at least 2005, but management objected to some terms of the country’s casino legislation.

One of the biggest roadblocks was that the concession would be good for only 10 years. Adelson, CEO was willing to invest $10 Billion on a resort that would include gambling, hotels and meeting space. The resort could take five years to build, a 10-year concession wasn’t enough to earn a good return on that size investment. Even in that time frame, national or local government officials could change the terms in a way that might tuck profit. The company’s resorts in Macau and Singapore have licenses that extended for 20 and 30 years, respectively.

Japan was considered a huge opportunity for the industry given its mature and wealthy population of 126 million. Locals are big fans of pachinko, a slot-machine-like game that’s become a $192 billion business, but no Vegas-style casinos exist. Enabling legislation was passed in 2016. With as many as three resorts opening, analysts predicted the market could top $20 billion annually, making it the second-largest in Asia after Macau.

Land prices and labor expenses in Japan are high, and banks were unwilling to lend more than half of the construction cost. The proposed taxes in Japan would be steep with a 30% levy on gambling revenue and a 31% corporate tax rate. The country was also planning to put limits on the number of times Japanese citizens could visit and impose an entry fee of about $55 a day, the people said. Winnings by foreign gamblers may also be taxed.

Trading Performance

Shares of LVS dropped from a high of $74.29 on January 17 to a low of $33.30 in mid-March and were trading at $48.5 on Tuesday, May 12. The stock reached its lowest level since 2010 but has been coming back. LVS’s loyalty to its employees, brand, and future puts the company that owns and operates the Venetian and Palazzo in the perfect position to survive and thrive as Vegas makes a comeback. The company also owns highly successful properties in Macau.

Las Vegas Sands Corp. [LVS] jumped into the green zone at the end of the last week, showcasing a positive trend. With this latest performance, LVS shares rose by 9.43% over the last four-week period, additionally sinking by -19.33% over the last 6 months, not to mention a drop of -21.49% in the past year of trading.

Fundamental Analysis

Sands reported first-quarter results recently, including revenue that fell by 51.5% to $1.78 billion from $3.65 billion a year ago. The company has also suspended dividend payments.

Operating Margin for any stock indicates how profitable investing would be, and LVS has an operating margin of 27.82% and a Gross Margin of 41.79%. Las Vegas Sands Corp.’s Net Margin is presently recorded at 19.64%.

Return on Total Capital for LVS is now at 20.08% and Return on Invested Capital for the company stands at 15.21%. Return on Equity for this stock inclined to 49.64%, with Return on Assets sitting at 11.80. When it comes to the capital structure of this company, LVS has a Total Debt to Total Equity ratio of 247.25.

Receivables Turnover for the company is 17.50 with a Total Asset Turnover recorded at a value of 0.60. Liquidity ratios are similarly compelling, with a Quick Ratio of 1.40 and a Current Ratio set at 1.40.

Revenue by Segment

 

Revenue by Region

 

Now What?

Chairman and CEO Sheldon G. Adelson remains bullish on the company’s growth prospects.

Sands tried to get the terms changed at a local as well as national level in Japan but could not come to a conclusion. Adelson has abandoned expansion efforts in the past when the anticipated returns didn’t seem like they were worth the risk, most notably a proposed resort in Spain in 2013. Recently, he said he may pursue casino acquisitions for the first time.

Japan has no plan to change its schedule regarding the launch of integrated resorts (IR) – Las Vegas-style complexes that include casinos and shopping arcades – despite Las Vegas Sands’ decision to end its plan to open an IR casino in Japan.

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