Las Vegas Sands likely to win big in Japan

Las Vegas Sands (LVS) could hit the jackpot on plans that will allow gaming companies to open casinos in Japan.

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Last year Japanese policymakers passed the Integrated Resort Promotion Act.

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The bill will authorize the development of casinos in the East Asian country for the first time. Precise locations for these integrated resorts – hotels that include casinos on their premises – will likely be revealed in the second half of next year. Licenses could be awarded in 2019, with the first integrated resorts opening their doors around 2024.

In an investment note, Morningstar said that it expects licenses for four integrated resorts to be awarded. Return on invested capital could hit 20% for these casinos, with their EBITDA margins similar to those of integrated resorts in Singapore.

Here’s Morningstar analyst Chelsey Tam:

In our view, narrow-moat Las Vegas Sands Corp (LVS US) is best positioned to win a gaming concession in the middle of 2019, due to its track record of managing global resorts with a strong balance sheet. Our $57 fair value estimate for Sands might increase by around a high-single-digit percentage, as we evaluate the impact from a Japanese gaming license over the coming weeks, which would leave shares slightly undervalued at current share prices.

Meanwhile, Morningstar thinks Macau could lose out once these integrated resorts open. It expects casinos to lure gamblers from South Korea and parts of northern China, but thinks Macau will still benefit from growing middle-class incomes in southern China.