A great Q on the surface but disappointing volumes and non-gaming revenues.



Genting Singapore reported net revenues of S$914MM and Adjusted EBITDA of S$538MM, which blew away our estimate by 5% and 17%, respectively, and beat consensus by even more.  However, after stripping away the impact of high hold, numbers would have been softer than our estimates.  By our math, high VIP hold of 3.8% boosted net casino revenues by S$139MM and EBITDA by S$132MM.  We are still waiting to speak to the Company to get more color on the quarter, but below are some preliminary thoughts on Genting’s quarter.




  • VIP gross win of S$707MM and net win of S$434.5MM
    • Genting disclosed that they had 59% market share RC volume in Singapore, which comes out to S$18.6BN
      • MBS reported RC volume of S$12.9BN, implying total market RC of S$31.6BN
  • Assuming, 3% normal hold, gross VIP revenues would have been S$149MM lower.  Post Goods & Services Tax (GST) and player rebate, the net revenue impact would have been S$139MM.  The only other variable expense is the 5% tax rate, which gets us to an EBITDA impact of S$132MM
  • Our gross VIP number also jives with Genting’s affirmation of having 68% market share of VIP win
    • MBS reported gross VIP win of S$330MM, implying a market size of S$1.03BN
  • Our gross VIP number is 64% of GGR vs. management’s assertion of 62%
  • Our net VIP number is 54% of net casino revenues vs. management’s assertion of 50%
  • We estimate that the rebate rate was 1.3%
  • We have less information on Mass table win and slot win, so we will address those details in a subsequent note.  However, our sense from the call was that Mass drop was lower than we estimated (flattish QoQ) with higher hold.
  • Non-gaming revenues were disappointing missing our estimate by $20MM
    • RevPAR was down sequentially, we were led to believe that it would be up.  Room revenues estimated at S$26MM, were $3MM below our estimate.
    • F&B and other was S$25MM about $7MM lower than our estimate
    • USS revenues fell S$10MM short of our expectations.  Despite Battlestar Galactica opening on Feb 21st, daily visitation actually decreased QoQ and were even a little lower than 3Q2010 volumes.  This was somewhat offset by better spend per visitor.
  • On the bright side it looks like fixed expenses declined by about S$15MM sequentially

HBI: Balance Gone

HBI's CFO departure is absolutely not a surprise to us. In fact, we're wondering why it didn't happen sooner. But that hardly changes the fact that a CFO change is never without its stress points -- espec with margin complexities that lie ahead.


Why are we not surprised that Lee Wyatt is moving on? The reality is that Rich Knoll rules with an iron fist. He has done so quite well, so we can not knock it. He's extremely motivated and incentivized with stock, which in his mind equates to growth. Growth in top-line, that is. 


Even though the message on conference calls has been coherent between the two, in speaking to Wyatt along the way, it's clear that his focus has been on improving the balance sheet. A wise philosophy for a company that was saddled with $2.6bn in debt upon the spin-off from Sarah Lee.


Did the recent Gear for Sports acquisition make sense? Yes, we think so. But it clearly  widened the philosophical gap between Wyatt and Knoll. Then on May 4th HBI announced that it acquired a small Australian distributor for $9mm.


This deal was a speck on HBI's balance sheet. But our sense is that it was the terminal blow in marking philosophical differences between the two. 


The reality is that at this stage of the economic cycle, we like Wyatt's strategy better -- use cash flow from recent successes to lower debt levels, boost EPS, and become a more formidable (not just larger) competitor.


The Macau Metro Monitor, May 12, 2011



“We have identified a site of approximately 17.8 acres [0.07 sq km] in Cotai and have submitted an application to the Macau Government to obtain the right to lease this parcel of land. We are awaiting approval of this application. Even if our Cotai project is approved and we are able to develop it successfully, we will continue to be dependent on Macau for our cash flows to the extent we are unable to develop properties in other markets," MGM China stated.


MGM China's potential site is almost three times smaller than the plot targeted by Wynn Macau, a 52-acre (0.2 sq km) area next to City of Dreams and Macau University of Science and Technology.


MGM China also wrote, "Gaming authorities in Mississippi and Michigan have stated that they are reviewing MGM Resort International's association with Pansy Ho and the gaming authority in Illinois has opened an investigation into this association."



China's new bank lending stood at $739.6 BN yuan in April, a decrease of $20.8 BN yuan YoY.  As of end of April, the balance of outstanding yuan‐denominated loans stood at $50.21 trillion yuan, up 17.5% from last year.

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Initial Claims Fall 40k, Retracing Nearly All of Last Week's Spike

The headline initial claims number fell 40k WoW to 434k (44k after a 4k upward revision to last week’s data).  Rolling claims rose 4.5k to 437k. On a non-seasonally-adjusted basis, reported claims fell 19k WoW.


The takeaway from this morning's data is that rolling jobless claims are now up for the past 10 weeks, and even more importantly we remain now at the YTD high in rolling claims. We use claims as our primary frequency determinant in thinking about losses for the consumer book of balance sheet dependent financials. The last time we saw such an inflection in the trend in jobless claims was summer 2010, a period in which the XLF lost roughly 20% of its value. Given the XLF is only modestly off its recent highs, we would be cautious given this continuing development on the jobs front. To this end, take a look at our fifth chart showing the overlay of jobless claims with S&P 500. The current divergence is among the widest we've seen in the last few years suggesting that either the market is due for a significant correction in the near-term or claims should fall precipitously in the next few weeks.








Two relationships that we are watching closely are the tight correlation between the S&P and claims and between Fed purchases (Treasuries & MBS) and claims.  With the end of QE2 looming, to the extent that this relationship is causal, it is quite concerning. 






Yield Curve Remains Wide

We chart the 2-10 spread as a proxy for NIM. Thus far the spread in 2Q is tracking 7 bps tighter than 1Q.  The current level of 262 bps is 2 bps tighter than last week.






Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. 






Joshua Steiner, CFA


Allison Kaptur

Kangaroo Markets

“I’ve worked with dogs before and they’ll sit and they’ll roll over.  With kangaroos, you say sit and they start boxing with you, they’re nuts.”

-Jerry O’Connell


Keith is out on some family business today, but I think he would, after the last 24+ hours of global market trading, agree with the titled of this note: Kangaroo Markets.  As creative as I can be at times, I have to give credit for the origin of the title to its rightful owners, the Aussies. 


In another capital markets sign of the topping of the global economic cycle, it seems Kangaroo Bond sales surged to a record A$37.3 billion last year and are on track to nearly match that total this year.  As a prominent Australian fixed income manager recently said to the financial press, “I expect more financial kangaroo sales.”  Indeed, and we expect more kangaroo markets, which is to say markets that are “nuts”.  Now, of course, markets can’t really be nuts, but Centrally Planned Price Volatility can certainly make those of us who trade them nuts.


Yesterday’s market action likely didn’t reward many.  The dollar index rallied hard, so commodities were taken out to the woodshed and U.S. equities were down -1% or so with the small cap Russell 2000 leading the way to the downside at -1.8%.  The pundits are calling this the “risk off” trade.  I’m not sure risk is really ever off, but it is a convenient way of explaining that many investors got caught leaning way too hard into consensus.  Or, perhaps, all the Hedgies at the SALT conference just aren’t trading this week…


The other important event yesterday related to the investment management industry was that Raj Rajaratnam, head of Galleon Management, was found guilty on all 14 counts of fraud and conspiracy.  Personally, I don’t have a lot of knowledge about the case, but I can tell you this, Raj’s lawyer certainly thought he was in a Kangaroo Court as he announced immediately after the verdict that they intended to appeal to the Second Circuit.


To the extent that this was actually a catalyst for the market yesterday, there is another catalyst in the pipeline on this front, which is the trial of Zvi Goffer, more commonly known in technology insider trading circles as Octopussy, who according to the accusations and this chart from the WSJ ( was purportedly in the middle of a web of inside information.  Personally, I just think he had a terrible nickname.


The bigger question, of course, is what does this all mean for the investment management industry?  Luckily, despite the headlines, most actors in the investment management industry are ethical and have legal processes, so the prevalence of cheating is likely much less than the headlines would currently suggest. 


In an unusual move, before we even had paying clients at Hedgeye we brought on board our compliance officer, Rabbi Moshe Silver, a Wall Street veteran of over 25 years.  Prior to joining Hedgeye, Moshe worked with Keith at the Carlyle-Blue Wave hedge fund, where he was director of compliance.  When Moshe came on board he recommended we introduce ourselves and our unique business model to our regulators – another unusual move, but in this day and age of increased scrutiny, we thought it was appropriate. 


Moshe’s contributions have expanded to sharing his unique – and occasionally hilarious – insights into the world of regulation, un-regulation, and the shadowy places where Wall Street and the Real World meet.  His thoughts appear in a weekly column that is a must-read for many of our clients.  Needless to say, Moshe hasn’t been effective at limiting our use of hockey references, but we’re glad he’s got our back as he oversees our research and communications to ensure that compliance always comes first.


If there is any potential market impact of more insider trading trials and investigations, it is perhaps to accelerate Centrally Planned Price Volatility.  We've highlighted this last point in the chart below.   Over the course of the past decade when interests rates have been taken to abnormally low levels, such as in the 2002 – 2003 period and in the 2008 – current period, price volatility increases, as emphasized by the VIX stepping up to a new level.


In theory, this makes sense.  Aside from attempting to artificial co-opt the natural business cycle, the other impact of our Central Planners taking interest rates to abnormal levels for extended periods is to force investors to speculatively chase return.  Practically, what does that mean? As an example, it means bidding oil up into the $100+ level when global growth is slowing and global oil inventory is building.  This works, of course, until it doesn’t and then the trade gets unwound, as we are seeing again this morning with the commodity complex down across the board and silver leading the way, down a cool -8.5%.  (But wait, silver’s an industrial metal! Or is it?)


Underscoring the heightened commodity and equity market volatility we are seeing is currency volatility.  This is a function of both the Central Planners at the Federal Reserve, but also the Fiat Fools in Washington, who are currently playing politics with the fiscal future of the United States on the debt ceiling debate.  For a comprehensive review of our thoughts on the debt ceiling debate, please see the note written by my colleague Darius Dale yesterday, titled “Fear Mongering Meets Brinksmanship: A Comprehensive Guide to Navigating the Debt Ceiling Debate.”


Be it the moniker Octupussy, or the Fiat Fools in Washington, some days all of this just seems a little childish, so with that we’ll end with a nursery rhyme:


“Jump, jump, jump goes the big Kangaroo,

I thought there was one, but I see there are two.”




Keep your head up and stick on the ice,


Daryl G. Jones

Managing Director


Kangaroo Markets - Chart of the Day


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