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

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more