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MACAU FINISHES STRONG

February will finish at a new monthly record.

 

 

It looks like February Macau gaming revenues are going to exceed our recently raised estimate of HK$18.5-19.0 billion.  Last week, daily table revenues surprisingly stayed above the HK$600 million per day level.  Not much of a post CNY slowdown here.  Through the 27th, table revenues were HK$18.2 billion.  With a full month of slot revenue and 1 more day of table revenue added, total Macau gaming revenues should come in around HK$19.5 billion, a monthly record despite the shortened month. 

 

We think the market benefitted primarily from higher volumes, not luck.  Our sources indicate that Mass volumes were also very strong,  which is a huge positive for profitability.  February’s performance is outstanding, particularly considering the slow, pre-CNY start to the month.  The only risk we see now is if Beijing were to apply the brakes but no indication of that yet.

 

Market shares are shown in the table below.  The only items of note are LVS picking up some share from SJM and MPEL’s share staying elevated and likely above Street projections.

 

MACAU FINISHES STRONG - macau


BYD YOUTUBE

In preparation for the BYD Q4 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from BYD’s Q3 earnings call.

 


YOUTUBE

  • “We’re pleased to report that the positive trends we’ve experienced in the third quarter are continuing into October. Given these trends, we expect our fourth-quarter comparisons will be the best of the year.”
  • “So beyond the broader economic recovery, it appears as though Las Vegas is finally beginning its own recovery.”
  • “Improvements in our Las Vegas Locals business is more about increased spend per visit than it is about increased visitation, and increases in spend per visit, or consumer spending, is more about consumer confidence than it is about job growth or housing statistics.”
  • “We firmly believe that increases in consumer confidence can and will have an impact on our business long before the metrics in the housing and employment show significant improvement.”
  • [LV Locals] These trends are improving, and we have started the fourth quarter on a strong note by posting positive comparisons so far in the month of October—[both EBITDA and revenues]
    • “We’re comparing it to October of 2009, so obviously, higher revenue will be generated by higher spend per visit. I don’t know that we’re creating a lot of new customers today, but we certainly have seen customers come back that have been sitting on the sidelines given their own personal economic conditions; so there’s certainly benefit from the lower tier and unrateds as well.”
  • “We expect the fourth quarter interest expense for Borgata, including debt amortization fees associated with the new financing, to be approximately $22 million.”
  • “Our effective tax rate for the quarter was 30%. This rate is lower than last year due to the consolidation of Borgata into our results. We expect the tax rate to be approximately the same for the fourth quarter of this year.”
  • [Capex spending] I would say that the numbers that we had for 2010 are probably good ones to use for 2011”
  • [Revel competition] “Look, in the Atlantic City marketplace right now, there is plenty of capacity and so that any additional capacity will just create additional competition that I think is not needed. So we’d certainly like to see the competitive landscape kind of stay as is and not see additional capacity added to the marketplace.”
  • [Borgata] “We haven’t changed our credit policies. We’ve been always very disciplined around that. We haven’t changed anything really in terms of how – other than our kind of our own normal business practices in terms of promoting. I think the market itself in Atlantic City has gotten more promotional around some of the credit policies and some of the play, but Borgata has largely not participated in that. [Room remodel] probably will occur sometime during calendar ‘11.
  • “When we get into the fourth quarter and then the first quarter, the first being the highest volume quarter of a calendar year, I think you’ll see improvements. As far as direction on marketing, I would say that we’re obviously not going to sit back and ignore what’s going on in the town. I think we want to pay strong attention to and continue to establish customer loyalty that we have, and you’ll see us be as aggressive as we need to be to compete in a very competitive market.”
  • Q: When Pinnacle opens up their site in Baton Rouge, is there a sense of how many customers are coming from that region that you think you would be competing against Pinnacle with?
    • A: Next to none.
  • “I think relative to labor [no increase in expenses], you’re absolutely correct. I mean, obviously, it will impact nominally marketing expense, because as people play more, they earn more, as our programs go. But we are very focused on flow through to the EBITDA line as we see spend-per visit move up.”


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WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE

This week's notable callouts are the MCDX municipal swap index breaking to its lowest levels since last November (this is a positive reflection on Muni credit), and the TED spread backing off its prior week highs. Among US Financials, ALL, AON and MMC tightened the most week over week, while JPM, C and RDN 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 / 2 of 10 improved / 1 of 10 worsened / 8 of 10 unchanged
  • Long-term (150 DMA): Positive / 5 of 10 improved / 3 of 10 worsened / 3 of 10 unchanged 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - summary

 

1. US Financials CDS Monitor – Swaps were mostly wider across domestic financials, tightening for just 1 of the 27 reference entities and widening for 26. 

Tightened the most vs last week: ALL, AON, MMC

Widened the most vs last week: JPM, C, RDN

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

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

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - US CDS

 

2. European Financials CDS Monitor – Banks swaps in Europe were mostly wider, tightening for 15 of the 39 reference entities and widening for 24.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - EURO CDS

 

3. Sovereign CDS – Sovereign CDS rose across Europe, climbing 11 bps on average last week.

 

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

 

4. High Yield (YTM) Monitor – High Yield rates rose slightly last week, ending at 7.83, 4 bps higher than the previous week.  

 

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

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index fell last week, ending the week at 1614, down from 1619.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - lev loans

 

6. TED Spread Monitor – The TED spread tightened last week, a reversal of the prior week's widening. It ended the week at 17.6 bps, down 3.5 bp week-over-week.

 

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

 

7. Journal of Commerce Commodity Price Index – Last week, the index held close to flat, falling just under a point to 33 by Friday.

 

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

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose 16 bps to 11.88%.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - greece

 

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 by 2.5 bps, closing at 154 bps on Friday, eclipsing their prior low from last November.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - markit 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.  The BDI ended the week at 1245, down 4.3% week-over-week. 

 

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

 

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread tightened by 11 bps to 270 bps. 

 

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

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 0.8% upside to TRADE resistance, -0.5% downside to TRADE support. 

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

 

Joshua Steiner, CFA

 

Allison Kaptur


TALES OF THE TAPE: SBUX, YUM, JACK, SONC, CMG, MRT, RRGB, KONA, CHUX, MRT

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

  • SBUX price target was raised to $42 from $40 at Piper Jaffray
  • SBUX saw the U.S. Court of Appeals for the Second Circuit uphold a lower court’s ruling denying Kraft’s request for a preliminary injunction against Starbucks Coffee Company.
  • YUM’s Taco Bell is launching a $3 million television ad campaign this week to battle damage to its image from a lawsuit questioning its taco filling. 
  • JACK and SONC traded strongly on Friday on accelerating volume to close out a poor week.
  • CMG traded down 6.5% last week.
  • Aside from MRT, RRGB, KONA, and CHUX, last week was a poor week for casual dining. 
  • MRT traded up on Friday on strong volume as the company announced FY11 EPS guidance above Street estimates.

TALES OF THE TAPE: SBUX, YUM, JACK, SONC, CMG, MRT, RRGB, KONA, CHUX, MRT - stocks 228

 

Howard Penney

Managing Director



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