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MPEL 4Q2010 CONF CALL NOTES

Another consensus beating quarter from MPEL and Q1 looks like it is off to a very good start.

 


"We are pleased to report another solid quarter of operating results, driven by continued improvements in the fundamentals of our business. Our fourth quarter results demonstrate our success in driving operating leverage and in improving the profitability of our portfolio of asset. Our mass market table games business continues to grow and has set a new company record for table drop and gross gaming revenue... Similarly, our rolling chip segment remains strong with gaming volume in the fourth quarter of 2010 setting a new company record. We look forward to the continued success of this ground-breaking show, as well as the opening of additional guest amenities in 2011."

- Mr. Lawrence Ho, Co-Chairman and Chief Executive Officer of Melco Crown Entertainment

 

HIGHLIGHTS FROM THE RELEASE

  • City of Dreams:
    • Net Revenue of $489MM and Adjusted EBITDA of $98MM (vs. our estimate of $111MM)
  • Altira:
    • Net Revenue of $245MM and Adjusted EBITDA of $46MM (vs. our estimate of $39MM)
  • Mocha Slots:
    • Net Revenue of $31MM and Adjusted EBITDA of $9MM (vs. our estimate of $8MM)

CONF CALL NOTES

  • Cost control and operating efficiencies are the key focuses for 2011 as they transition from a development to an operating company. They did raise their labor rates though.
  • First quarter results are off to a strong start - with volumes and visitations well ahead of last year. 5 biggest days of the company's history were recorded this year.
  • House of Dancing Water continues to sell out and draw visitation - which had a positive impact on occupancy, play levels, and F&B
  • Grand Hyatt is now reaching higher occupancies - with 85% and December surpassing 93%
  • Continue to have a favorable outlook from additional supply on Cotai. 
  • Consolidated EBITDA would have been $125MM if hold was 2.85%. 
  • They are comfortably in compliance with their 4.5x leverage test
  • Interest coverage: 2.5x
  • Expect to continue to reduce their debt balances from amortization and cash flow
  • 1Q2011 guidance:
    • D&A: $85MM
    • Corporate: $17-18MM
    • Net interest expense: $28-29MM
    • No meaningful capitalized interest or pre-opening expenses

Q&A

  • Likelihood of a partial smoking ban passing in Macau?
    • It would have an impact on revenues but they believe that the government will be receptive to hear their thoughts on implementation of a smoking ban
  • Have been surprised how strong volumes have held up post CNY.
  • Credit levels are quite healthy at current levels
  • House of Dancing Water has been performing very well on a stand alone basis - breakeven on a stand alone basis but with positive ripple effects on the rest of the business
  • No major developments on Taiwan gaming since the last call
  • Maintenance Capex for 2011? $60MM of total capex - the majority of which is growth rather than maintenance though
  • Ramp of direct play in 4Q vs. 3Q?
    • Direct play grew the business by 50% in the quarter at CoD
      • was between 15-20%
    • We saw 19% direct play in the quarter at CoD compared to 13% in the 3Q2010 and our estimate of 15%, which was part of the reason why EBITDA was lower than our projection. Hold percentage was therefore lower than we thought.
  • VIP/ Mass table splits:
    • Altira: 180 VIP tables, 30 Mass
    • CoD: 170 VIP tables, 240 Mass
  • Continuing to find more operating leverage throughout the organization.  Have ramped up amenities nicely at CoD. Continue to ramp up the Mass and Direct play business.
  • Didn't see any changes in rebate rates over the last few months
  • Haven't seen any need to change their bad debt provisioning policy, feel adequately reserved given their volumes
  • Thinks that the Chinese government measures are meant to cool the economy to prevent overheating.  Government wants to increase tourism. They are not concerned about the tightening measures which they believe will ensure steady growth.
  • Is the $115MM shareholder loan still outstanding? Any plans to repay it this quarter?
    • if they pay back the loan, it will be part of optimizing their capital structure - which they are looking at doing this year
  • Are they capital constrained currently?
    • Depends on new opportunities that present themselves - their current bank facility is more of a heavily amortizing project loan
  • Had about $35MM of scheduled amortization payments in the quarter and another $70MM of prepayments from cash flow generations. 
  • Future prospects in Japan?
    • Japan and Taiwan are two jurisdictions that they have done a lot of work on and have an interest in.  There is more consensus between the two leading parties in Japan than there has been in the past but sees it as more of a 2012 event.
  • Cotai Pact re: commissions with Galaxy. 
    • Started discussions a few months ago which have been positive. Think that the new neighbor will be happy to join the pact.
  • Altira - What is driving the growth in Mass revenues at the property?
    • Increasing membership in their database and visitation.  They did a lot of direct marketing and customer realignment between premium mass and regular mass play.
    • Corporate reorganization last summer also helped results in terms of marketing to their player base
  • Costs at CoD for 2011 - is 4Q a good run rate?
    • Plan is to be as efficient as possible but they will be impacted by labor rate increases and new amenity costs. Net net they think that costs will be controlled
  • Third tower at CoD? Are they gearing towards serviced apartments of more hotel rooms?  Is there future growth beyond CoD and Altira?
    • With hotel occupancy hitting north of 80% levels, they are in preliminary stages of dusting off those plans. That additional tower is a 1.5MM sq ft development  - which would  be a large addition to the property.  It would also likely involve additional gaming and retail capacity.
    • More likely than not it would be a hotel, not that enthusiastic about apartment hotels at the moment but will monitor the situation
    • As far as new properties - they still have a management contract on Macau Studio City and hope to eventually start that project
  • Cubic opening? They are in the final stages of government approval. Still looking at an end of 1Q early 2Q opening. Should be the best nightclub in Macau.
  • Opened 2 new junket rooms at CoD 
  • Hard Rock Cafe should open in Sept or 4Q2011

TALES OF THE TAPE: GMCR, CBRL, EAT, DPZ, PZZA, RRGB, SBUX, PEET, CMG, RUTH

Notable news items from the past few days and price action from Friday’s session.

  • Malcolm Knapp reported casual dining comparable restaurant sales of +0.6%, which implies a gain of 115 bps in two-year average trends.  Comparable guest counts declined -1.5%, which signifies a two-year average gain of 100 bps.
  • GMCR and Dunkin Donuts announced a promotion, manufacturing, and distribution agreement that will make Dunkin’ Donuts coffee available in single-serve K-Cup portion packs for use with the Single-Cup Brewers.  This is yet another data point that affirms my conviction that a GMCR/SBUX deal is not likely.  Starbucks is looking for more control and more distinction, not less.
  • CBRL reported 2Q EPS of $1.20 versus consensus $1.21.  Management reaffirmed guidance for the year of $3.95-$4.10 versus consensus of $4.12.
  • DPZ, PZZA EPS estimates cut at Janney, citing price of cheese
  • RRGB gained 12.5% on Friday following strong earnings on Thursday.  RRGB reported $0.14 ($0.12 excluding tax and one-time items) versus expectations of $0.05.  Management indicated that the company will take a 1.5% price increase in April.
  • The coffee stocks outperformed QSR on Friday. 
  • CMG declined on solid volume; I see inflation as a significant headwind for CMG and see copious downside in the stock price.
  • RUTH declined on earnings that were in line with expectations.  Management cited price gains as a remedy to beef inflation.

TALES OF THE TAPE: GMCR, CBRL, EAT, DPZ, PZZA, RRGB, SBUX, PEET, CMG, RUTH - stocks 222

 

Howard Penney

Managing Director


WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM NEGATIVE

This week's notable callouts  are the MCDX municipal swap index breaking lower again, while the TED spread hits its highest level since last August.  Among US Financials, COF, AGO and MBI tightened the most week over week, while insurers MET, PRU and HIG widened the most.


Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 2 of 10 improved / 4 out of 10 worsened / 5 of 10 unchanged
  • Intermediate-term (MoM): Positive / 5 of 10 improved / 3 of 10 worsened / 3 of 10 unchanged
  • Long-term (150 DMA): Positive / 6 of 10 improved / 3 of 10 worsened / 2 of 10 unchanged 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM NEGATIVE - SUMMARY

 

1. US Financials CDS Monitor – Swaps were mostly tighter across domestic financials, tightening for 18 of the 28 reference entities and widening for 10. 

Tightened the most vs last week: COF, MBI, AGO

Widened the most vs last week: MET, PRU, HIG

Tightened the most vs last month: JPM, COF, XL

Widened the most vs last month: PMI, RDN, GNW

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM NEGATIVE - us cds

 

2. European Financials CDS Monitor – Banks swaps in Europe were mostly tighter, tightening for 23 of the 39 reference entities and widening for 15.  (One was flat.) 

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM NEGATIVE - euro cds

 

3. Sovereign CDS – Sovereign CDS rose across Europe, climbing 19 bps on average last week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM NEGATIVE - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates fell last week, ending at 7.79, 5 bps lower than the previous week.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM NEGATIVE - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index flatlined last week, ending the week at 1619 where it started.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM NEGATIVE - lev loan

 

6. TED Spread Monitor – The TED spread backed up last week to its highest level in six months, ending the week at 21 versus 17.8 the prior week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM NEGATIVE - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index held close to flat, falling just under a point to 34 by Friday.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM NEGATIVE - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose 20 bps.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM NEGATIVE - greek bonds

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads fell last week, closing at 157 on Friday, matching their prior low last November.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM NEGATIVE - mcdx

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  With Australian floods and oversupply pressuring the Index, it has fallen 30% early in the year, down 60% from its most recent peak. For the last two weeks the BDI has been bouncing off the lows.  Last week it rose 123 points to 1301. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM NEGATIVE - baltic dry

 

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread widened very slightly to 281 bps. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM NEGATIVE - 2 10

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 0.6% upside to TRADE resistance, -2.1% downside to TRADE support. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM NEGATIVE - xlf

 

 

Joshua Steiner, CFA

 

Allison Kaptur


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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - February 22, 2011


Libya remains a key focal point in capital markets as Gaddafi digs his heels in and the prices of oil and gold gain.  Asian equities extended yesterday’s losses and U.S. futures have declined from Friday’s close.  As we look at today’s set up for the S&P 500, the range is 16 points or -0.97% downside to 1330 and 0.22% upside to 1346.

 

MACRO DATA POINTS:

  • 09:00 a.m.: S&P/CaseShiller Home Price Index, December. 20 City MoM% SA est. -0.50%, prior -0.54%. 
  • 10:00 a.m.: Conference Board Consumer Confidence Index, February.  Est. +65.0, prior 60.6. 
  • 10:00 a.m.: Richmond Fed Manufacturing Index, February. Est. 18, prior 18. 
  • State Street Investor Confidence Index
  • 11:30 a.m.: 4-Week Bill Announcement
  • 11:30 a.m.: 3-Month Bill Auction
  • 11:30 a.m.: 6-Month Bill Auction
  • 01:00 p.m.: Minneapolis Federal Reserve President, Narayana Kocherlakota, speaks in Pierre, South Dakota.

 

EARNINGS/WHAT TO WATCH:

  • The regime of Muammar Qaddafi appears to be unraveling as diplomats and soldiers alike desert the leader following brutal crackdowns on protesters.  Libya holds the largest oil reserves in Africa.
  • This past week saw the earnings beat rate slip 100 bps to 69% from the week prior.
  • Moody’s changed Japan’s credit rating outlook to negative, prompted by “heightened concern that economic and fiscal policies may not prove strong enough to achieve the government’s deficit reduction target and contain the inexorable rise in debt”.

PERFORMANCE:

We have 8 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.

  • One day (Friday): Dow +0.59%, S&P +0.19%, Nasdaq +0.08%, Russell 2000 +0.10%
  • Month-to-date: Dow +4.203%, S&P +4.42%, Nasdaq +4.96%, Russell +6.86%
  • Quarter/Year-to-date: Dow +7.03%, S&P +6.79%, Nasdaq +6.83%, Russell +6.53%
  • Sector Performance: - Energy +0.42%, Materials +-1.11%, Consumer Disc +0.27%, Tech -0.15%, Financials +0.22%, Healthcare +0.24%, Industrials +0.28%, Consumer Spls +0.27%, Utilities +0.22%.

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 458 (-293)  
  • VOLUME: NYSE 1162.45 (+31.78%)
  • VIX:  16.43 -0.96% YTD PERFORMANCE: -7.44%
  • SPX PUT/CALL RATIO: 2.65 from 1.18

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 22.25
  • 3-MONTH T-BILL YIELD: 0.09%
  • 10-Year: 3.52 from 3.59

COMMODITY/GROWTH EXPECTATION:

  • CRB: 342.20 +0.06%; YTD: +2.67%  
  • Oil: 92.50 +7.31% YTD: +0.30%
  • COPPER: 440.05 -2.12%; YTD: -0.88%
  • GOLD: 1,397.15 -0.66%; YTD: -1.66%

COMMODITY HEADLINES:

  • Corn Futures Advance to Highest Level Since July 2008 on Increased Demand
  • Wool Supply From World’s Biggest Exporter To Be Tight, Shippers Group Says
  • Rubber Futures in Tokyo Decline as Much as 2.6% to 511.3 Yen Per Kilogram
  • Corn, Soybeans May Rise on Demand for U.S. Supplies, According to Survey
  • Vietnam Coffee Price Rises to Highest Since 1995, newspaper says
  • Fonterra Raises Forecast Milk Payout to Farmers on Higher Dairy Prices
  • Surging Food Costs, Unrest in Middle East May Drive Increase in Stockpiles
  • Coffee Exports From Indonesia May Be Held Level by Rainfall, Shippers Say
  • Sugar Production in India to Climb Next Year, Aiding Exports, Group Says
  • China Plans to Sell 150,000 Tons of Sugar From State Reserves on February 28th
  • Lenzing of Austria Said to Plan $684 Million Share Offering by Late April
  • IOI Corp. Leads Malaysian Plantation Stocks Lower as Palm Oil Futures Drop.

 

CURRENCIES:

  • EURO: 1.3666 +0.26%
  • DOLLAR: 77.835 +0.20%

 

EUROPEAN MARKETS:

  • FTSE 100: (0.97%); DAX: (0.31%); CAC 40: (1.47%)
  • Mersh Says ECB May Warn Next Week of Rising Inflation Risks in Euro Area
  • Barclays, Santander Are "Driven Out" of Russia as State-Owned Banks Expand
  • Papandreou Urges Merkel to Support Debt Buybacks, Changes to Rescue Fund
  • BOE Officials May GIve Signals on Momentum Toward Interest-Rate Increase

 

ASIAN MARKTES:

  • Nikkei: (1.78%); Hang Seng: (2.11%); Shanghai Composite: (-2.62%)
  • Oil, Bonds Jump as Stocks, Futures Drop on Libya; Kiwi Weakens After Quake
  • China Said to Order Banks to Assign Greater Risk to Local-Government Loans
  • Japan Debt Outlook Lowered by Moody’s on ‘Inexorable’ Debt
  • Honda Cutys Number of Directors, Echoing Toyota's Management Reorganization

THE HEDGEYE DAILY OUTLOOK - levels and trends 222

 

Howard Penney

Managing Director


Holly to Pay $2.9 Billion for Frontier Oil in All-Stock Deal


MACAU: NICE FOLLOW THROUGH FROM CNY

Raising our February rev target to HK$18-19BN

 

 

As a result of very strong volume during the Chinese New Year celebration and surprising follow through in the last week, we are upping our February forecast.  We are now projecting full month total gaming revenue of HK$18.0-19.0 billion (32-40%) versus our previous estimate of HK$17.0-18.0 billion.  Table revenues were HK$14.0 through February 20th implying a surprisingly strong post CNY table revenue per day of HK$609 million.

 

In terms of market share, MGM had a huge week, pushing its February table share up to 11.1% (it was only 9.4% as of last week), in-line with its 3 month average.  LVS lost a lot of share in the past week, down from 18.3% as of 2/13 to 16.8% through 2/20.

 

MACAU: NICE FOLLOW THROUGH FROM CNY - MACAU333

 

Galaxy slipped further back from its poor showing as of last week and this appears to be a combination of lagging VIP win % and a lack of hotel room capacity to take advantage of the busy period. This will obviously change with the opening of Galaxy Macau.

 

There have been a few changes to the gaming floors around town the past week.  Sands removed their only Craps tables and the Venetian has increased to 3 craps tables.  Sands are also down 115 slot machines as a large area directly beside the stage is cordoned off and under renovations.

 

MGM are also down about 80 slots while renovations continue at the back of the casino.  Also being renovated is a VIP room right at the back of the casino beside the entrance from the shopping area.  All tables have been removed and work is in progress.  The Lions bar remains untouched and curtained off.

 

The renovations at Encore are complete with 4 additional gaming rooms over 4 floors replacing corner suites.  Each room has 6 tables, 4 in the main area and two separate VIP rooms with one table each for a total of 24.

 


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