Impressive Singapore results drove an estimate-beating quarter



"We set quarterly records for both net revenue and adjusted property EBITDA during the quarter. Strong revenue growth and margin expansion in Macau, together with the continuing ramp of growth in all areas at Marina Bay Sands in Singapore contributed to excellent financial performance overall."




  • Adjusted Property EBITDA $901.6MM and Net Revenue of $2.35BN
  • MBS: Adjusted Property EBITDA of $405.4MM and margin of 55%
    • "Record VIP, mass gaming and slot volumes coupled with steady growth in non-gaming revenue streams.. reflect the broad appeal of the property to Singapore's visitors from across the Asian region. Looking ahead, as the property continues to mature, we are confident that Marina Bay Sands will generate significant increases in business and leisure visitation to Singapore"
  • Macau: Adjusted Property EBITDA $391.6MM and a 33% margin 
    • "The growth of our higher margin mass table and slot businesses, together with the contribution from the important non-gaming components of our integrated resort business model, continue to drive significant margin improvement at Sands China"
  • Las Vegas: Adjusted Property EBITDA of $92.9MM
    • "Quarterly results clearly reflect the implementation of our strategy to focus on cash-paying corporate group, convention and FIT customers, and to optimize our promotional activity for gaming customers as the Las Vegas market continues to recover. Table games drop was up modestly during the quarter, while slot handle naturally reflected the contraction expected with the decreased promotional activity. Cash revenues from occupied rooms increased by more than 18% compared to the same quarter last year. In addition, 97% of our occupied rooms during the quarter were sold to cash paying customers, compared to just 70% in the second quarter of 2010."
  • "Corporate expense ....increase was primarily driven by higher incentive compensation expenses attributable to the company's improved financial and operating performance, as well as increased legal fees."



  • Ramp process is still ongoing at MBS. Demand is starting to outpace supply.
  • Opening of Galaxy Macau has severed as an additional feeder to the Cotai market
  • The Plaza casino is primarily designed to cater to the VIP segment of the market
  • Embarking on a $100MM investment (ahead of Chinese New Year end in 2012) to enhance junket relations
  • Retail sales at the Venetian Grand Canal shops were up 50% and 70% at the shops at Four Seasons.
  • Lots 5 & 6: They have finalized franchise agreements with two brands on lot 5 and the property is still on target to open 1Q2012. Lot 6A (Sheraton rooms) will open in 3Q2012 with a casino and 2,000rooms. Lot 6B in 2013 will feature 2,000 additional rooms and suites (opening early 2013). The addition of 6,000 rooms will serve as a catalyst to grow their MICE business.
  • Ed Tracy will be promoted to CEO of Sands China



  • Is the summer in Singapore seasonally the strongest?
    • Based on July, it seems like it will be the best quarter of the year and it does seem that summer is the peak but they are still ramping so it's too early to tell. LVMH is still opening as are two night clubs.
  • Struggling more VIP growth at Sands. They are disappointed that they didn't do better at Four Seasons but they will. They're working on improving their junket relationships which should help grow their junket business
  • More development on Cotai is helping support the market growth there by creating critical mass
  • S'pore trends: higher spend per win; more repeat customers
  • S'pore credit terms unchanged
  • Macau Junket/direct play %: 4 to 1
  • Macau $125MM capital campaign target for completion by Chinese New Year 2012
  • S'pore refinancing talks: not started yet
  • Venetian mass market: Galaxy Macau opening is having a positive effect but hasn't been material
  •  S'pore junket process: still thinking it will be done by end of 2011. If RWS gets approval for junkets, then MBS will too.
  • Junkets at Venetian Macau: in 12-18 months, may return to better (low-teens) VIP share. May not see impact of new junket relationships until 1Q 2012.
  • Good convention calendar for rest of year allows good management of cash & comps.
  • Vegas room demand in July: pretty good, about what they expected.
  • S'pore ETG:
    • No room for additional capacity
    • $650-675 slot win/day (weekday); $1,000-1,100 slot win/day (weekend)
  • S'pore keeps ramping, particularly mass and slot business
  • Q2 S'pore expenses are a good run rate for the rest of year
  • Sites 5&6 estimates: 200 tables per casino; 110 in Plaza; 400-500 tables in total; 120-130 ETGs; no limitation on ETG but table limitation of 50 seats equal one table game
  • Promotional spending: more pressure in Macau
  • Sites 5 & 6: have enough workers to be on target
  • S'pore market far from being saturated
  • No evidence of VIP slowdown in Macau, very frothy environment

Long India

Conclusion: Our-once long list of fundamental concerns appears to be priced in from a quantitative perspective and the go-forward outlook augers well for mean-reversion to the upside over the intermediate-term TREND.


Position: Long Indian Equities (INP).


Earlier this morning, we added a long position in Indian equities to our Virtual Portfolio. After having been the bears on this market since early November ’10, we have been explicitly warming up to India (and other bombed-out emerging markets) of late.


As we wrote in our 6/24 piece titled, “Emerging vs. Developed Markets: Aggressively Framing Up the Debate”, our Deflating the Inflation thesis is explicitly bullish for equity markets like India which have underperformed due to their central bankers hiking rates to quash inflationary pressures. Though the US Dollar Index is flirting with a TREND line breakdown, it appears to be registering a higher-low on an intermediate-term basis. Further, the CRB Index remains broken from a TREND perspective – alongside a variety of other key commodities including crude oil. It appears that neither Obama nor Boehner can help extend the Inflation Trade indefinitely.


Long India - 1


Long India - 2


Turning back to India specifically, we like what we saw out of the Reserve Bank of India overnight, hiking their benchmark interest rates +50bps to 8% (repo) and 7% (reverse repo). This marks their 11thrate hike since last March and takes India to being as close to positive from a real interest rate perspective since 4Q09. On the margin, this hawkishness should continue to perpetuate lower-highs in Indian credit and money supply growth over the intermediate-term TREND.


Long India - 3


This is bearish for Indian growth on the margin and we remain 70-100bps below the Street on India’s real GDP growth in 2H11. That said however, this certainly isn’t new news (the SENSEX Index is down -10% YTD; -14% since we turned bearish) and our quantitative models continue to suggest that this is nearly priced in. Additionally, our models point to a bottoming of Indian economic growth in 3Q and an eventual rebound in 4Q11. Recall that Indian GDP growth has been decelerating since 2Q10, so this inflection in growth may prove rather bullish for Indian equities over the intermediate-term TREND.


Long India - 4


When we last published on India, we had four major concerns which we would’ve liked to see addressed prior to going long this market. They are as follows: 

  1. Accelerating inflation driven by rising domestic crop and energy prices;
  2. A highly likely miss in the government’s deficit reduction target;
  3. A capitulation by consensus on Indian economic growth; and
  4. A near-term winding down of the Sovereign Debt Dichotomy

With the borderline exception of issue #4, we’ve seen some bullish developments in these regards.


First, both the RBI and Finance Minister Pranab Mukherjee have publicly acknowledged that recent food (rice, soybeans, and peanuts) and energy price (diesel, kerosene, and cooking gas) hikes will take some time to filter through the economy and could provide incremental upward pressure to India’s WPI reading. Additionally, a revision to the base year of the WPI calculation caused June’s +8.7% YoY reading to be revised up to +9.4%. Both give us confidence in our model’s forecasts that inflation in India will not be in the area code of the RBI’s +6% target by March ’12. Still, we do expect it to peak in August and see limited scope for additional rate increases over the intermediate-term TREND and long-term TAIL.


The interest rate swaps market agrees with our longer-term view that the magnitude of interest rate hikes in India has more than likely peaked, with the reverse repo yield above historic averages and the repo yield a mere 100bps away from its 2008 high. We suspect it will also conform to our shorter-term view as Deflating the Inflation continues to play out across certain key segments of commodity complex.


Long India - 5


Long India - 6


Secondly, our once-contrarian view that the Indian government will miss its deficit reduction target and cause interest rates to incrementally back up is becoming more and more consensus. Recall that in a 2/28 research note titled, “India: Missing Where It Matters Most”, we aggressively ripped apart the assumptions embedded in Mukherjee’s FY12 budget and suggested that India was likely to miss the target by a considerable margin as a result of lower than expected growth (less tax receipts) and higher than expected commodity prices (more subsidy expenditures). Now, as recently as a couple of weeks ago, even the prime minister’s chief economic adviser C. Rangarajan admitted that the target of 4.6% of GDP is “difficult to achieve.” Another top economic planning official, R. Goplan, recently launched a public defense of the target and associated borrowing requirements. We view this as the first step toward official capitulation and recent lower-lows across India’s sovereign yield curve support our view that the market has already come to this realization.


Long India - 7


Thirdly, we recently received an important data point regarding how consensus views Indian economic growth. Earlier this week, Fitch revised down their estimate for India’s FY12 real GDP growth to +7.7% vs. a prior forecast of +8.3%. We’ve been vocal about our bearish bias on both the timing and accuracy of ratings agency and sell-side economic forecasts, and we welcome Fitch’s capitulation as a sign that growth in India is indeed bottoming from an intermediate-term perspective. We expect further capitation from sell-side forecasts in the coming weeks, as economists scramble to adjust their Keynesian models to account for today’s +50bps rate hike – a move that was correctly predicted by none of the 22 Bloomberg survey participants.


Lastly, we continue to remain bearish on the EU’s sovereign debt woes and continue to strongly believe that we are in the earlier stages of a 3-5 year sovereign debt default cycle. Understanding the research behind this backdrop grants us the conviction needed to manage the headline risk associated with Europe’s current and pending issues on both sides of the trade. Given, we are likely to remain Risk Rangers in Indian equities with a bullish bias over the intermediate-term TREND.


Darius Dale


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

UA: Big Duration Mismatch


The fact that the stock is trading down on a beat and guide-up shows exactly why we don’t like the stock now. UA guided down gross margins materially. They’re making up for it in SG&A – which is puzzling given that they are an investment cycle. While we love UA on a TAIL (3-year) duration, the fact is that first it has to get past the TREND (3 month) and TRADE (3 weeks). We like it lower.  Overall, no change to our negative thesis (see yesterday’s note – reprinted at the end of this note).


What we liked:

  • UA posted solid top-line growth driven primarily by apparel revenues up +36% on top of 34% growth last year. The addition of charged cotton (we estimate between $20-$25mm, or 9-12% of growth) was a key driver in the quarter and one of several launches the company has planned in the coming quarters. Next in line for Q3 is Storm Fleece in September along with the latest basketball footwear for BTS. UA’s product pipeline is loaded and likely to keep top-line growth rates well above 30% near-term.
  • Direct-to-Consumer growth was up 80% accounting for 27% of sales in the quarter up from 23% in 2010. With gross margins in excess of 10pts higher than the company’s core, DTC will be a key offset to escalating margin pressures.
  • UA took up guidance by more than the Q2 beat – again. In fact, the incremental raise was greater than in Q1. The company beat top-line expectations by ~$20mm in each of the last two quarters. In Q1 it raised full-year guidance by $40mm, for Q2 the company increased guidance by another $50mm reflecting greater confidence in the 2H revenue numbers.

What we didn’t like:

  • Inventories remain an overhang near-term up +75% on +42% revenue growth. Yes, the company communicated that Q2 would mark peak inventory growth due to bringing its hats and accessories business in-house and planned build ahead of BTS, but you can’t ignore the underlying trend turning negative here. If we strip out these two factors in each of the last two quarters, the sales/inventory spread over the last four quarters would were down -7%, -10%, -9%, and then down -15% here in Q2 (see SIGMA below). The yy changes in both Receivables and Payables remain negative as well.
  • This is the second quarter in a row where the company beat on revenue, missed on gross margin, and then made up for it in SG&A. In fact, the company lowered its gross margin expectations for the year by an incremental 50-80bps from down -100bps to -150bps-to-180bps. As an offset, it also reduced the outlook for marketing expenses by 50-80bps. You can’t knock the company for leveraging expenses, but the outlook implies a reduction in the absolute dollar spend – something you don’t want to see for a company growing revenues at 30%+.
  • Embedded in lighter than expected Q2 gross margin results was the impact of increased sales allowances. While the company has an active product pipeline for the 2H, more aggressive sales allowances with inventories at peak heightens concern over the company’s ability to maintain margin levels in the 2H. With half of the adjustment to gross margin outlook from pricing and the other half sales allowances at the same time we’re entering a period where price variability remains high, so too does the possibility for further adjustments again next quarter.

With the changes to working capital still negative and margin risk and uncertainty increasing as we head into the 2H, we remain bearish on the name over the Intermediate-term TREND (3-months or more).


UA: Big Duration Mismatch - UA 7 26 11



07/25/11 02:39PM EDT



We don’t like UA around tomorrow’s print – either into it or out of it. Let me be crystal clear on duration…

TAIL (3 years): Luv you long time, UA. These guys are pulling one right out of Nike’s playbook. The growth profile is unquestionable to us. Though they have yet to get any ancilarry categories right – such as Women, Footwear, and International – they will. Of that, I am near certain. But that is also one of the reasons why the team and I don’t like this name on a TREND (3-month) duration.


TREND: The fact of the matter is that even through all the ebbs and flows of revenue, UA has been printing an operating margin of 10-11%. It could have easily been printing something in the mid-high teens. But no, instead it opted to plow the capital into the model to stimulate top line growth. I like that. But’s a double edged sword…

  1. On one hand , I am extremely confident in the top line trajectory. When Plank stands up there and says that the company will double in sales over 3-years, I believe him (and I’m a natural cynic).
  2. But the reality is that there have been several initiatives that simply have not panned out yet. Footwear has been a zero. Granted, the original structure of the company was insufficient for anything but failure in this category), and the current team will tread slowly (no pun intended). They probably won’t mess it up, but we’re very very close to the point where people won’t simply give the Gene McCarthy organization the benefit of the doubt. If footwear does not work, this company won’t double.
  3. Charged cotton was a good launch. Definitely better than footwear. But it was a shadow of its core performance product. This is not a savior for UA.
  4. UA is spending like a drunken sailor. That’s probably a bit dramatic. But with growth in retail stores accelerating, endorsing Michael Phelps, Lindsay Vonn, Kemba Walker, Derrick Williams (#2 NBA draft – ahead of Kemba at #9) and some dude named Tom Brady, the reality is that UA is in investment mode. They’ll play this like Nike in that they will make it work – but will spend more along the way to ensure their success.

If you have a 3-year+investment time horizon, then you have nothing to worry about. They’re doing the right thing.

But we’re paid to point out the potential landmines along the way.


With the stock at $78, 40x+ earnings, 16x+ EBITDA and very little controversy on the name, we’re simply wary – if not flat-out negative given that cash flow is headed the wrong way.



In preparation for the BYD Q2 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from BYD’s Q1 earnings call and subsequent conferences/releases.



Acquisition of Imperial Palace Casino Resort Spa

  • “We plan to invest approximately $44 million in certain capital improvement projects over the next year.”
  • “The IP did produce approximately $41 million in EBITDA on an LTM basis through May of 2011. This is on par with our Delta Downs operation. However, we believe that the EBITDA potential of this property is even higher. Based on our preliminary diligence, we believe that there is a minimum of $5 million in synergies achievable in the first year.”
  • “We will initially be funding the transaction using a portion of the $560 million of availability we have under our credit facility. The non-extended portion of our credit facility matures in May of next year. To address that maturity and create the company’s desired liquidity, we will utilize availability under the extended portion of our credit facility, as well as execute approximately $300 million in capital market transactions.”
  • “I think the market in first quarter grew in the 2% range and we see it grow slowly as the economy continues to grow.”
  • “These $5 million worth of synergies are ones that we can get early in the process and we are comfortable that we can achieve... I think we view this as kind of the minimum level of synergies because there are the opportunities... in terms of cross marketing, getting the benefit from being part of a larger company in terms of centralized services and things of that nature.”
  • “This property actually has grown EBITDA I think over the last 12 months quite dramatically, and they’ve seen some pretty good improvement in the EBITDA. Once again, some of that has been revenue growth, some of that has been efficiencies I think they’ve worked out of the property.”
  • “And I really think that, and part of the strategy behind this acquisition is, we can meaningfully grow IP’s market share by tapping it into the B Connected program because obviously our customers are visiting the Gulf Coast or spending time there or spending dollars and we just don’t have anything to provide them in that region.”
  • “Relative to our other properties in the region...we believe benefit the most is Treasure Chest. Folks that live in the New Orleans area frequent on a very regular basis, as a getaway, the Biloxi market, it’s only about 90 minutes away. And so it really gives us a really neat marketing opportunity between a very strong local property and kind of that regional destination.”
  • “The Shreveport market has been under significant pressure relative to market growth as a result of the continued expansion of Native American gaming in the state of Oklahoma. Oklahoma is clearly closer, and the tribes have built very substantial facilities to compete for that Dallas/Fort Worth metroplex customer. So, it is interesting to think that another license could be really successful in that market.”
  • “I think insurance will be one of the opportunities we have and that we’ve identified potentially once we get in and look at... to save money. So, I think relative to where they are today, there is probably a stepdown, and then markets are kind of stable at this point, to slightly increasing. But there will be benefits, we believe, from them benefiting from a corporate-wide insurance program.”
  • [IP depreciation run-rate estimate] “We’re using $20 million.”
  • “In terms of the timing of the $44 million, it will be ...probably 10 or 12 months. In terms of the room product, the property has been going through an ongoing room renovation product, and so the rooms are in various stages of kind of renovation there. And the slot product, our preliminary review of the slot product is it’s current and we think it’s competitive for what’s in the marketplace, and don’t see the need for any significant capital dollars in the slot product.”
  • “This property is a clear number two in the market. And once again its physical plant is a clear number two, it’s very competitive with the Beau Rivage, and gets a similar customer type to the Beau Rivage. So, I think you could at look at the market and put these – the Beau Rivage, and the IP property – at the top of the market, and then tier down from there.”
  • “I think the ongoing maintenance requirements are probably $5 million to $8 million.”
  • “The extended credit facility is at LIBOR plus 350. The non-extended portion is LIBOR plus 1.625%. Our current blending rate at the company overall is right around 5%.”
  • “In terms of secured capacity, you have to remember, we get the benefit of the gain from Dania to count as EBITDA. So, covenants are not an issue at all with respect to this transaction and even absent, if you look at it without the Dania transaction, it’s still deleveraging from the perspective of secured covenants, so covenants are not an issue for us at this point."


Youtube from Q1 Conference Call

  • “The second quarter is off to a good start as well as our properties reported solid results in April. Our results for the first 4 months of this year give us confidence that we have reached a turning point. Based on these results, we expect to continue seeing year-over-year growth in our wholly-owned business through the remainder of the year….Most major shows in 2011 have reported solid growth from last year, and based on current bookings, we expect that trend to continue through the second quarter.”
  • “We took an important first step in this direction when we reached an agreement to sell Dania Jai-Alai for $80 million. This asset was no longer consistent with our current growth strategy, and by selling it, we raised a significant amount of capital that can be used to pay down debt and reduce our leverage. I’d also note that Dania represented a $4 million drag on our annual earnings. Between the elimination of this operating loss and reduced interest expense from the reduction of debt, we expect this transaction to be immediately accretive to earnings, adding about $0.06 annually to our earnings per share.”
    • “We have already received $5 million of the sales proceeds in the form of a non-refundable deposit. We expect to receive the remaining $75 million towards the end of September when the transaction is expected to close.”
  • “Though the promotional environment remains elevated, it is clear that the aggressive advertising and promotional campaign launched by our largest local’s competitor has not shifted guests away from our properties. Our customers continue to enjoy the exceptional customer service and compelling value offered by our brand.  So there will be enhanced marketing I think. As you enter the summer, it’s natural. I don’t think you’re going to see us react to that. We’re going to remain fairly disciplined on that front. If the current trends hold, we expect to show year-over-year growth in the Las Vegas Locals region in each of the remaining quarters in 2011.”
  • “Jet fuel prices are up sharply and fierce competition on Hawaiian air routes limits our ability to pass along these increases in the form of higher ticket prices. While increased costs will remain a factor, we are optimistic that positive trends will continue in the Downtown business in the second quarter.”
  • “Economic conditions in the Midwest are improving, and we expect Blue Chip and Paradise to post year-over-year growth in the quarters ahead.”
  • "We have started to see frequency improve at the high end of the database. I would say to you that spend per visit, is no worse than flat, and in some of our markets, including some of our properties in Las Vegas, spend per visit is starting to grow.”
  • “Borgata’s CapEx for the year would be about $40 million And then at Boyd, we indicated we expected our capital expenditure program for the year to be about $50 million.”
  • [Borgata table hold] “We think the 13% level is probably the right level for the next year or two, and it’ll eventually, I think, trend back up a little bit.”
  • [Leverage ratio after Dania] Secured leverage ratio will probably improve by about 60 basis points, and the total leverage ratio will probably by almost a full turn, 90 basis points.”

Risk Ranger: SP500 Levels, Refreshed



We are long 2 S&P Sector ETFs (XLP and XLV). After covering our short position in the Financials (XLF), we do not currently have any S&P Sector shorts. What’s implied by our positioning is that we think the SP500 is setting up to rally, again, to another lower-YTD and lower-long-term high. 

  1. Long-term TAIL resistance = 1377
  2. Immediate-term TRADE resistance = 1353
  3. Intermediate-term TREND support = 1320 

What’s interesting here is that I have TRADE and TREND lines of support converging below the markets price. That’s bullish – and convergence like this in my model typically leads to a sharp rally to the upside.


Is there a catalyst for the Risk Ranger to register the high-end of the range in the chart below? Big time. A Debt Deal should be imminent. If Congress follows the polls, that is (Rasmussen just registered a New Low: 6% think Congress is doing a good job!). The Pain Trade is still up.



Keith R. McCullough
Chief Executive Officer


Risk Ranger: SP500 Levels, Refreshed - SPX

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.43%
  • SHORT SIGNALS 78.34%