Author: Kody Babler (student)
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Edited by: Kathleen Gallagher, Executive Director, Milwaukee Institute, Executive in Residence in Investment Communications, University of Wisconsin-Milwaukee, former author of investment trend pieces and Pulitzer Prize winning reporter for the Milwaukee Journal Sentinel
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Click here for the complete report on Las Vegas Sands Corp. with additional details on drivers, financials, and valuation.
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Before Japan was ready to deal, Las Vegas Sands Corp. (LVS) had already sat down at the table. Since 2012, the world leading developer and operator of integrated resorts has been targeting the island nation to as part of its global growth strategy.
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Late last year, Japan legalized casinos, and is in the process of determining the rules surrounding the new legislation. With a strong history of success both domestically and internationally, Las Vegas Sands is poised to continue growing globally.
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Prime Minister Shinzo Abe and the Japanese government recently announced, in early August, the preliminary outline of regulations for casino resorts (IR). Restrictions will restrict how often Japanese nationals are able to visit the resorts, the implementation of identification cards tagged to the player’s social-security number, and would force gamers to pay for chips only in cash. While the subconcession rules continue to be developed, reports suggest that casino operators may be limited to a rather small 15,000 square meter floor.
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After the Chinese leaders’ crackdown on anti-money laundering activities in 2016, the Japanese government will welcome gaming with strict standards to ensure that the transition is completed appropriately.
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“The world’s highest standards of casino regulations will be introduced, and policies to deal with issues like gambling addiction will be addressed.”[1] – Sheldon Adelson
Las Vegas Sands founder Sheldon Adelson earlier this year said the transition to the Japanese market is a sure bet for LVS.
“Japan is what everybody is talking about, said Adelson during the Q117 earnings call.”[2] LVS is an industry leader for its global growth strategy and should be able to take advantage of developments in Japan. Many expect Japanese casinos to attract people living in Northern China, due to the proximity of the casinos to the customers. With LVS prepared to build a $10 billion integrated property in Japan, there is a strong expectation that the gaming operator will be the first to secure a subconcession from the Japanese government.
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“We have been informed by people in the know in Japan that LVS (or Las Vegas Sands) is by far, not just marginally, but by far ahead of the other competition.”
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Japan is expected to open its doors to licenses for casino operators within the next year, so management expects that the firm will be the first operator to break ground in the region. MGM and WYNN have also expressed interest in Japan, however Las Vegas Sands is better positioned due to the firm’s strong financial position, industry-leading cash flow metrics, and a history of successful international growth.
The Japanese Parliament must outline the implementation and subconcession rules, and pass the plan through the House before operators are able to begin developing in the region. Japan expects that by allowing two properties to be developed in the region that major cities in the country could bring in more than $10 billion in revenue (total company revenue is about $14 billion). This development would benefit LVS’ stock by as this would increase the current asset turnover, driving up ROE.
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The Japanese government had planned for one or more casinos to be ready by the 2020 Summer Olympics in Tokyo; however it must pass legislation quickly to be prepared for what is expected to be one of the largest turnouts in history.
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Source: Babler, FactSet, LVS public filings.
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[1] Cohen, Muhammad. “Global Casino Industry Juiced For Japan.” Forbes. Forbes Magazine, 16 Apr. 2017. Web. 8 May 2017.
[2] Daniels, Jeff. “Macau Market Improving as Las Vegas Sands Posts Higher First-quarter Earnings.” CNBC. CNBC, 28 Apr. 2017. Web. 5 May. 2017.