Takeaway: Headline Q2 GGR disappointed but the mix likely more favorable than expected. HE Mass Tracker suggests mass revs up 2-4%. LVS is the play


The Hedgeye Macau Mass Tracker suggests mass gaming revenue increased in the range of 2-4% YoY in Q2. Given the headline GGR disappointment of -9%, positive mass growth may come as a surprise to most. If the Tracker is right – the high R Square suggests it probably is – this would imply better margins in general for the Macau operators’ Q2. With a growing mass segment, LVS is the obvious play and it is our favorite, particularly over the long-term. Our only reservations pertain to the very near term – for whatever reason, the sell side has not reduced Q2 expectations despite the softer monthly GGR figures.


Positive mass revenue growth in Q2 would represent the first growth quarter since Q3 2014. Extrapolating estimated Q2 mass revenues portends consistent YoY growth for at least the next 3 quarters, and likely more assuming just some market growth from new properties. This is a very important inflection point for the market and particularly LVS. Importantly, within the mass segment, higher margin bass mass is likely outperforming. Not only is LVS the largest mass player in Macau, it maintains the most exposure to base mass.




Takeaway: Caribbean tailwinds abate somewhat for the rest of 2016 - soft guidance stemming from Europe & China matters

Here are our takeaways from today's release and conf call:

  • Thanks to close-in North America business the Q1 yield beat was huge. However, Q2 guidance is much weaker. A simple calculation would suggest 1H yield growth average 4% (it's actually a little less than 4% since Q2 has a higher weighting in terms of revenue contribution than Q1) which is slightly ahead of our expectations and the Street's. This is why only the low end of FY yield guidance was raised by 50bps despite the huge Q1 beat.
  • But the Q2 weakness is more concerning
    • Additional promotional discounting is needed in the Mediterranean for the close-in bookings to fill the ships. RCL has had to source more guests from Europe than usual (69-70% of European business (usually 2/3)) since North America guests are more hesitant to booking into Europe, a point we emphasized in our recent cruise presentation. As a result, RCL is lowering their yield expectations for Europe. This sourcing shift is also a negative for NCLH's European business which is mostly US-sourced. In addition, European guests spend lower on board the ships than North American guests do. 
    • The company continues to blame capacity increases in China, particularly in Shanghai. Management's tone has shifted from high optimism to caution regarding China. Capacity in China is 9% this year vs 6% last year.
    • Low end of expectations in Shanghai (50-60% of total China business) i.e. Quantum of the Seas and Mariner of the Seas. Everyone knows China is a close-in market. In its release, RCL implicitly suggested that visibility on China's bookings environment is getting murky. RCL certainly feels tenuous about China currently. In our recent cruise presentation, we stressed pricing pressures in China.  
    • The Easter shift accounts for 20-30bps, shifting from Q1 to Q2 2016. 
    • Introducing 2 new ships (Harmony of the Seas/Ovation of the Seas) ramps up occupancy but at lower yields - Harmony's inaugural sailings is in a tough European environment and Ovation is in China, which has seen lower yields YoY in 2016. 
  • Fuel/FX - Midpoint FY 2016 EPS guidance was raised by 25 cents with 15 cents contributing from a FX/fuel tailwind. FX/fuel benefited Q1 by 8 cents, which implies a 7 cent tailwind for the rest of 2016. 
    • But bunker fuel prices have risen on average ~15% since Q1 which leads us to believe that mgmt's fuel expense guidance could be too low
    • Meanwhile, the US dollar has weakened ~5% for RCL's blended currency basket since Q1.
    • Hence, so far in Q2, the tremendous rise in oil prices has outpaced that of the US$ weakness which suggests the 7 cent tailwind for the rest of 2016 may come in a little bit lower if current prices persist.
  • NCC ex fuel growth guidance was raised slightly for the full year to 1%. It's not that big of a hike but any hike isn't great as China costs have increased.
  • Caribbean is less important going forward. For some perspective, Caribbean deployment in Q1 was 63%; it's averaging ~39% for the rest of 2016. For Europe, itineraries accounted for almost 0%; for 2Q and 3Q, Europe accounts for 28% and 40% of RCL's capacity, respectively. China deployment overall, as mentioned above, is also higher YoY due to Ovation's entry into Tianjian into late June 2016. 



COMPANY NEWS               

WYNN -  72,851 shares were transferred at an average price of $98.78 btw WYNN's family trust through Form 4

  • The footnotes state that the transactions reflect "a substitution of cash for shares held by a trust previously established by Wynn" and the noted share values reflect the price "used for valuing the transferred shares for purposes of the asset substitution provisions". 


RCL - For the first time ever, Royal Caribbean will position two ships in its Cape Liberty, Bayonne cruise port. Both Anthem of the Seas and Rhapsody of the Seas will sail Caribbean itineraries during the summer of 2017.  Rhapsody of the Seas will sail seven-night Bahamas cruises and a five-night Canada and New England cruise in the summer. It also will sail a 12-night fall foliage cruise and 13-night Southern Caribbean cruise before repositioning to Tampa for the winter. Anthem of the Seas will continue to call at Bermuda, the Bahamas and Caribbean throughout the summer, in addition to sailing a offering of Canada and New England cruises.  

 Takeaway: Could see slightly higher exposure to the Caribbean in 2017.


RCL (TUI CRUISES) - Thomson Cruises has announced that its new addition will be named TUI Discovery as part of the re-brand which will see the whole of Thomson transition to TUI over the next eighteen months. The update on TUI Discovery comes as Thomson Cruises also announces its new program for summer 2017 which will see the fleet based in the western Mediterranean, eastern Mediterranean and the UK for the first time since 2014.  TUI Discovery and Thomson Majesty will both be based in Palma, Majorca whilst Thomson Dream will sail from Corfu.  Thomson Spirit will move to Dubrovnik, Croatia and offer adult-only cruising while the fifth ship in the fleet, Thomson Celebration, will split its summer between Malaga, Spain in May and October and ex UK sailings from Newcastle between June and September.  


CCL - Announced that it has declared a dividend of $0.35 per share, an increase of 17%.  "The increase in our quarterly dividend follows a 20% increase less than a year ago and reflects our sustained earnings improvement and growing net cash flow which is forecasted to reach $4.5 billion in 2016," said Arnold Donald, Carnival Corporation & plc President and Chief Executive Officer.  "The increased dividend, in combination with our current share re-purchase program, underscores our commitment to return value to our shareholders." The company's board of directors approved a record date for the quarterly dividend of May 27, 2016, and a payment date of June 17, 2016.

 Takeaway: CCL has enough cash for a div increase


NCLH - The luxury line Wednesday said it would become the first cruise operator to include business class flights to its ships in the fare for all customers.   The offer applies to all European, Asian and South American voyages where a customer would need to travel on an intercontinental flight in order to reach the ship or to return home.  Regent said the included business class flights would be available to and from 26 U.S. and Canadian gateway cities.  Even passengers in the lowest categories of cabins will be eligible for the included flights.  Regent bills itself as the most inclusive cruise line. It already includes shore excursions, fine wine and spirits, unlimited Internet access, prepaid gratuities, ground transfers and pre-cruise hotel stays in its fare.

Takeaway: One way Regent says competitive is to offer more freebies 


MSC CRUISES - MSC Cruises, as reported previously, will implement several new sales policies that make its terms less generous and more closely aligned with those offered by its competitors in North America.  Among the changes are its first policy restricting the practice of commission rebating, a rule in place for more than a decade at brands such as Royal Caribbean International and Carnival Cruise Line.  “We want travel agents to advertise us at the going rate,” said Ken Muskat, the executive vice president of sales, public relations and guest services at MSC Cruises USA. “We want it to be fair across the board.”  The other policy changes include raising deposit minimums, making it harder to cancel cruises without a penalty, and setting a two-month window for passengers to move a direct booking to their agent’s account.  


MACAU | NEW JUNKET CAPITAL REQUIREMENTS - Macau’s government is working with gaming promoters on a proposal that would see capital requirements for new operators increasing 100-fold, according to people familiar with the matter. If passed, the move could further squeeze revenue for Wynn Macau Ltd. and other casino companies.  One proposal under consideration includes raising capital requirements for new junket operators to 10 million patacas ($1.3 million) from 100,000 patacas, and the inclusion of at least one Macau resident as a shareholder, said one of the people, who asked not to be identified because the deliberations are private.   

Takeaway: Given the tough environment, the question is who is interested today in becoming a new junket operator? 


MACAU | TOURIST PRICE INDEX - DSEC indicated that the Tourist Price Index for the first quarter of 2016 decreased further by 6.67% YoY to 136.44, attributable to lower charges for hotel accommodation, and reduced prices of handbags and women’s clothing. Price index of Accommodation decreased most significantly by 23.80% YoY, followed by Entertainment & Cultural Activities (-2.35%) and Clothing & Footwear (-1.98%). On the contrary, price index of Food, Alcoholic Drinks & Tobacco increased by 3.77% and that of Transport & Communications rose by 2.31%. 


MACAU | MASTER CARD ASIAPAC DESTINATION INDEX - The first MasterCard Asia Pacific Destinations Index tracking the growth of the region’s tourism doesn’t include Macau in its top 20 for overnight tourist arrivals and tourists’ expenditures.  The study is the first MasterCard Asia Pacific Destinations Index - an offshoot of the annual Global Destination Cities Index - to take a more in-depth focused look at these tourism trends, taking data from the national tourism boards of 22 countries and ranking 167 destinations, including island resorts as well as towns and cities across the region, in terms of the total number of international overnight arrivals; cross-border spending; and the total number of nights spent in each destination.  According to MasterCard Asia Pacific Destinations Index, Hong Kong ranked 7th with 8.3 million international overnight visitors, Shangai ranked 12th with 5.5 million overnight visitors, Beijing was 18th with 4 million, and Guangdong Province (excluding Guangzhou, Shenzhen & Zhuhai) ranked 19th with 3.9 million visitors.  Macau's dependence on Chinese visitation is the main reason they didn't break the top 20 on the index.   


SINGAPORE | INTEREST RATE CUT - Singapore's central bank unexpectedly eased policy on Thursday after growth stalled in the first quarter and as slackening global demand darkened the outlook for the trade-dependent economy, sending the local dollar tumbling to its worst loss in eight months.  In its third policy easing in 15 months, the Monetary Authority of Singapore (MAS) said it will set the rate of appreciation of the Singapore dollar NEER policy band at zero percent - starting on Thursday - and shift to a neutral policy stance.  It marked the first time the MAS has moved to 'neutral' since the global financial crisis, and compares with its previous policy stance of a "modest and gradual" appreciation of the Singapore dollar.

Takeaway: Despite the easing of policy, the USD/SGD has moved lower YTD by 4%. 


GAMING | BATON ROUGE SMOKING BAN -  The Baton Rouge Metro Council narrowly rejects smoking ban for bars, casinos; long debate touches on health, morality, business climate.  Casino executives from L’Auberge Casino and Hotel, Hollywood Casino and the Belle of Baton Rouge showed up in full force and tried to quell concerns about their employees’ well-being.  Mickey Parenton, the senior vice president of operations and general manager of L’Auberge, insisted his No. 1 priority is his employees. He said if an employee complains about smoke, he would move the employee to a smoke-free part of L’Auberge without a change in pay.  Casino executives said they would expect about a 20% drop in revenue if the ordinance passed. New Orleans banned smoking in casinos and bars a year ago, and council members and people attending Wednesday’s meeting squabbled over how much that smoking ban is to blame for declining revenues at Harrah’s New Orleans Hotel and Casino. 


NEVADA | UNEMPLOYMENT/EMPLOYMENT DATA - The state’s jobless rate came in at 5.8%, down from 5.9% in February and 6.9% in March 2015, the state Employment, Training and Rehabilitation Department reported Wednesday.  Much of the improvement came from job growth. Employers expanded payrolls by 2.8% YoY, for the nation’s third-best job-formation rate.  Nevada’s employers added 35,500 jobs year to year, for the 63rd straight month of gains. March was also the 44th consecutive month in which the state’s annual job growth outpaced the nation’s, said Bill Anderson, the employment department’s chief economist.


LODGING | AFRICAN HOTEL DEVELOPMENT - Despite slowed growth across the continent, Africa remains a major hospitality destination for tourists and business so investors are planning 30% more hotels this year than they did in 2015, says a new report.  The spike in hotel development on the continent is mostly driven by sub-Saharan Africa where growth more than doubles the rate in North Africa, according to W Hospitality Group which tracks the growth rate of expansion for regional and international hotel chains in Africa. The slowing hotel development growth rates in Northern Africa, asides from the sociopolitical crises in Egypt and Libya, is due to the market being “more mature” says Trevor Ward, managing director of W Hospitality Group.  In contrast, sub-Saharan Africa remains still holds gaps of opportunities which investors are clearly keen to explore. Nigeria tops the list of countries with the most planned hotels while Angola, buoyed by AccorHotels’ deal to build 50 hotels in the country, has risen to second place. While the report covers the hotel deals agreed for the year, the timeline for the construction and opening of these hotels is entirely different. Access to finance, among other reasons, have slowed down the execution of building plans. But the new deals signal long-term trust in the African hospitality industry despite the current economic outlook for leading economies on the continent.





Iowa SS GGR: +1.0% YoY 

  • BYD: +5.1% YoY
  • CZR: -1.0% YoY
  • ISLE: +3.0% YoY
  • PNK: +0.5% YoY

Atlantic City SS GGR: -1.7% YoY

  • BYD (Borgata): -4.0% YoY
  • CZR: -4.7% YoY



Déjà vu, rerun, we’ve seen this movie before, replay, Rocky X. After re-reading our LVS Q3 analysis, I was struck by the similarity with last night’s release. Hedgeye was positioned long on the stock. What we thought would happen did indeed happen. The stock still looks like a long but, just like last quarter, only for a trade.


Believe me, I want to make the long recommendation, call the turn, be the maverick. In meetings with clients in New York, Boston, and London I laid out conditions I was looking for to go long for more than a trade: 1) multiple compression, 2) lower Street estimates more in line with Hedgeye, and 3) a belief that Mass has stabilized. For the first time in our 2 year-long short call 1) and 2) have occurred but it’s that fundamental point number 3 that brings us back to our keep a trade a trade recommendation.





A much needed shot in the arm, Macau table revenues jumped sequentially last week, causing us to raise our December forecast. However, while any improvement is welcome, let’s put things into perspective. It’s only one data point, table revenues still fell double digits YoY, and the comparison was easier than week 1. Looking ahead, more government constraints may be on the way in the form of real-time Union Pay monitoring and sell side estimates are already not bearish enough for 2016. While maintaining our negative view of the Macau stocks, we didn’t feel that December GGR was necessarily a negative catalyst and we still feel that way. We do, however, remain on the bearish side and are looking for re-entry points on the short side.


See our detailed note: CLICK HERE




MGM - MMCT, the joint Mohegan-Mashantucket Pequot venture authorized to seek a site for Connecticut's third casino received five site proposals ahead of Friday's 4 p.m. deadline.  The venture, which issued a request for casino proposals in October, said in a press release that it had received submissions from East Hartford, East Windsor, Hartford and Windsor Locks.  Mohegan Tribal Council Chairman Kevin Brown has described the project as in direct competition with MGM Springfield, which is scheduled to open in late 2018.



MPEL - The firm operating the City of Dreams Manila casino resort in the Philippines capital, Manila, said its chief operating officer Kevin Sim resigned on Friday for “personal reasons”.  Melco Crown Resorts Corp added, in a filing to the Philippine Stock Exchange announcing the news, that the company would make an announcement about Mr Sim’s replacement “at the appropriate time”.  The firm is a unit of Asian casino developer Melco Crown Entertainment Ltd.



MAR - U.S.-based hotel chain Marriott International Inc and Alibaba Group's online travel booking platform announced a tie-up on Monday, joining a flurry of rivals expanding their presence in China to cater to the country's growing upper-middle class.  Marriott's deal announced on Monday is a commission-based tie-up with Alitrip that allows customers to book rooms with their mobile phones. It follows a September deal with an Alibaba affiliate allowing Marriott customers to settle their bills with Alipay, a Paypal-like payments service.  



CCL - Papua New Guinea's uninhabited Conflict Islands, one of the most remote and peaceful atolls in the world, will be opened up to cruising from next year. Unveiling its 2017-18 program, P&O Cruises announced Pacific Jewel will make the first-ever cruise ship call to the privately-owned islands in June 2016.  In 2017 P&O will also offer its first international "sea break" short cruise, with Pacific Eden's second Cairns season including four-night roundtrip itineraries to Alotau in Papua New Guinea and scenic cruising through Kawanasausau Strait and Milne Bay. 



PCLN - A partnership with China Mobile – China’s biggest mobile phone network with more than 800 million users – means anyone reserving a room from a dedicated page on China Mobile’s web site gets at least 1GB-worth of free data.  It also applies to bookings made via the China Mobile app.  And for subscribers to China Mobile’s Shanghai Mobile brand, the reward is 2GB per booking.  The amount of free data will increase in proportion to the number of bookings a user makes. modestly claims this is “the world’s biggest cross-industry marketing campaign in history.”



Gaming Industry Review - The government will complete this year its review of the gaming industry, Secretary of the Economy and Finance Lionel Leong Vai Tac has said.  Mr Leong told reporters that the results of the review would be announced early next year.  The review examines the progress of the six casino operators since the liberalisation of the gaming market in 2002. Each of the concessions they hold will expire between 2020 and 2022.



Demand For Casino Staff - Demand for manager-level and other types of skilled workers in the Macau casino industry is forecast to grow by about 30% over the next three years.  A special committee on labour policies set up by the government has come up with the estimate.  The forecast was based on studies commissioned by the committee from four Macau higher education institutions. The studies have not been made public; the estimate was instead included in an official press release on Friday’s meeting. It did not detail the methodology used to come up with the figure. 


Takeaway: Unit labor costs are probably still headed higher


River Cruises - Several river cruise lines have been forced to cancel or alter their plans on the Danube River, due to continuing low water levels and drought conditions in Europe.  On a sailing from Budapest to Amsterdam on Uniworld Boutique Cruises' Maria Theresa supership, the captain delivered the news Friday in Passau that the ship could go no further. Other ships are tied up at a smaller town about 12 hours east.  Saturday, members of the ship were told that three cargo barges have run aground near Deggendorf, completely closing the river, even to small craft.



  • MARYLAND SS GGR: +9.2% YoY
  • ILLINOIS SS GGR: +2.1% YoY
    • BYD: -1.5% YoY (Par-A-Dice)
  • IOWA SS GGR: +1.6% YoY
    • BYD: +6.1% YoY

Takeaway: Regional gaming revenues coming in solid for October. We still like BYD on the long side