It was impossible to know whether it might be “February or March” before China’s coronavirus emergency was resolved, said Robert Goldstein, president and chief operating officer of Las Vegas Sands Corp, on an earnings conference call on Wednesday.
The group – the parent of Macau operator Sands China Ltd – added the China viral pneumonia alert to its list of corporate risks in its press release for fourth-quarter earnings, while also announcing a US$0.79 per share dividend to be paid on March 26.
The public health crisis in China – which has seen the national government suspend the individual visit scheme system for exit visas for mainlanders to come to Macau – had meant currently “every segment is in decline for every property” in the Macau market, said Mr Goldstein.
“When this does resolve… whether that’s February or March I don’t know. When it does resolve, Macau is going to be very, very, very busy… these folks like to gamble,” said the COO, referring to Chinese consumers. The comeback would be due to “pent up demand” as the emergency had been “killing Chinese New Year” and consumers would be keen to make up for the lost celebrations, he said.
The conference call was ostensibly about the group’s fourth quarter earnings for last year, although many of the analysts’ questions were about the collapse in Macau tourism witnessed at Chinese New Year due to the coronavirus outbreak in China that has seen seven imported cases in Macau as of Wednesday.
“In the near-term, the coronavirus remains the key problem given it was a ‘strong start’ to January,” said analysts Andrew Lee and Lois Zhou of brokerage Jefferies LLC in a note issued in Hong Kong on Thursday morning.
“However, we sense management remain positive on the Macau outlook given pent-up demand while the U.S.-China phase-one trade deal is likely to benefit VIP and premium mass,” they added – referring first to improved trade relations between the United States and China that last year had reportedly affected Chinese consumer confidence, and second to gaming consumer segments in the Macau market.
JP Morgan Securities (Asia Pacific) Ltd said in its note about the earnings call: “Novel coronavirus impact is serious, no two ways about it. As widely reported, Macau’s visitations have dropped approximately 80 percent in recent days, which substantially weighs on the business in every segment, at every property, for everyone, with very little visibility as to when this will be resolved.”
January started well
Mr Goldstein said on the earnings call that the coronavirus alert – which emerged in late December in the mainland city of Wuhan in Hubei province – had had no effect on the casino group’s business “for the first 21 days” of January.
But he noted that in the past few days visitor arrivals to Macau were “down 80 percent”. He added: “Our business is revenue dependent… it is an expensive business to operate.”
The COO noted that while the group was looking to manage some of its Macau costs, “it would be silly to think we could make a mature impact on operating costs.”
But he added: “This storm will pass. We don’t know when. But we do know we will be first in line in each of our markets to be the biggest investor…”
JP Morgan noted in a memo after the call: “The management… acknowledged there isn’t much room for cost-cutting to offset such massive drops in business, although they’ll do their best to mitigate.”
The current crisis comes against the background of the pending public retender for gaming rights of all six Macau operators. The Macau government and the local workforce have been consistently vocal about the wish to protect local employment across the local casino sector.
Mr Goldstein was asked on the call whether the slowdown in the Macau market might actually be an opportunity to ramp up work on converting Sands Cotai Central in the Cotai district, into its new role as a themed resort called the Londoner Macao. He said it was something the group was examining.
‘Unique and serious’ event
Earlier on the call, Mr Goldstein’s boss Sheldon Adelson, chairman and chief executive of Las Vegas Sands, had described the current public health alert as “unique and serious”.
Nonetheless Mr Adelson said the firm’s belief in Macau as the most important casino gaming destination in the world – and potentially the most important globally for meetings incentives, conferences and exhibitions (MICE) – was unwavering.
Referring to infrastructure upgrades in the group’s Cotai operations in Macau, Mr Adelson said: “We believe there is no better market in the world than Macau, with regard to our continued deployment of capital.”
In terms of actual fourth-quarter results, net revenues in Macau operations fell 0.8 percent year-on-year, to just over US$2.24 billion, from just under US$2.26 billion in the prior-year period.
But at Marina Bay Sands in Singapore, quarterly net revenues jumped 17.5 percent year-on-year to US$853 million, from US$726 million.
For the group as a whole – including Las Vegas, Nevada operations, fourth quarter net revenues were just under US$3.51 billion, compared to just under US$3.48 billion in the prior-year quarter, an improvement of just under 1 percent.
Macau adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) in the fourth quarter rose 3.2 percent, to US$811 million, from US$786 million.
In Singapore, such EBITDA was up sharply – by 26.2 percent – at US$457 million, compared to US$362 million in the prior-year period.
Las Vegas Sands’ group wide adjusted EBITDA for the three months to December 31 rose 9.1 percent, to just under US$1.39 billion, compared to US$1.27 million in the prior-year period.
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"The resurgence of Covid cases in China is again delaying a market recovery [in Macau] and is a credit negative"
Vice president and senior credit officer at Moody’s Investors Service