Talk about a rough crowd. Las Vegas Sands Corp. disappointed the street by posting results for Q1 that were heavily affected by poor win-hold in Singapore and Las Vegas and the shares were beaten down by nearly 10% in overnight trade in New York. There is just no pleasing some people.

OK, so we understand the disappointment in the numbers if taken at face value. But when you readjust for win-hold, is it really all that bad? We can understand hammering the stock a few months ago when the company disclosed the SEC investigations. But now, just because Lady Luck turned against it?

Indeed, while we don’t have much insight into Singapore beyond continuing to note how Marina Bay Sands is fighting an unfair battle there a battle that cannot be expected to continue this way much longer before the ref steps in we are quite impressed by the place that is still the biggest driver of growth for LVS. Sands China president Ed Tracy may not be a financial architect like some of his peers in Las Vegas, but the man clearly knows how to wring every last dollar out of an operation. To have widened his company’s Ebitda margin in the quarter to 33.4% is a very respectable achievement.

Yes, we can do the math and understand that the QoQ recovery in win-hold at Four Seasons (Plaza) was a godsend, contributing most of the gain from Q4 so that Sands China could take US$373m to the bank. But how the heck did Tracy manage to get 35.8 cents of every dollar spent at the Venetian to flow through to the bottom line? On a win-hold in the VIP rooms of just 2.69%?! And Sands, too: Ebitda margin widened again to 28.7% despite a win-hold of just 2.75% in VIP play.

The answer, we suspect, is in the “reinvestment” side of the business. Tracy knows that he’s in a market where everyone around him wants to take a swing at the champ, especially ahead of the opening of Galaxy Macau. And so he is boxing very cleverly, keeping his gloves up but not throwing too many punches, waiting for his opponents to tire. Those Ebitda margins are making all the difference in the world right now, when win-hold is not in his favor. The minute Lady Luck casts her charms on Venetian and Sands again, and his opponents have depleted energy levels, it will be a different story. He is going to have a lot left in the tank. Reinvestment will become a nice word again in the halls of the Venetian, and we can see some roundhouses being thrown.

There are still some challenges ahead. We don’t see the top line growing the way it should be in the VIP business. US$3.5bn in rolling-chip volume at Four Seasons is nice, but compares to US$4.7bn in Q3 last year. Mass revenues at the Venetian appear to have plateaued, whereas the Grand Lisboa and Casino Lisboa on the peninsula, let alone Wynn Macau, are surging by comparison. On the development front, meanwhile, we positively chortled at the line in the company’s press release that said it was looking forward to opening Lot 5&6, which will be “the only major property to open in Cotai for the next three years”. Really? Putting aside the wisdom of making a statement that should be left to Francis Tam in the first place, we can’t see that property itself being finished in the next three years at the pace it is going.

But we have a feeling that the situation will not last like this for too much longer. Like that chapter in the Godfather, Part II, where the reader starts to realize that Don Corleone has been building up an army out of sight, we think there is room for upside surprise in this company’s Macau operations. As long as the Feds stay out of Sheldon Adelson’s hair a big question, of course it is certainly hard to imagine how much potential downside there is left for Sands China. Win-hold shifts, new VIP rooms open, marketing programs get aggressive again, and the numbers start to look radically different. Adelson zips his lip, blue cards get issued, buildings get completed, and suddenly it’s a new picture again in Cotai. Would we bet our kids’ college tuition on any of this happening? Not just yet. But stranger things have occurred in this place. Stay tuned. Used with permission & copyright IntelMacau.com