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Once again, the hold impact confuses investors.  Sell side compares apples to oranges.  This was a solid quarter.

Heading into earnings, a lot of analysts raised estimates bringing consensus EBITDA estimate from $178 million just a month ago up to $220 million.  Their reason?  Higher than normal hold percentage.  So MPEL comes in at $240 million - $195 normalized for hold – and some on the Street call it a miss?  Seems disingenuous to us.  High hold was already in their estimates.  It was in ours and they still beat us by $5 million.  If one uses the same VIP hold as last year, EBITDA would’ve still grown 75-80%.  This was a good quarter.

Aside from the hold confusion, there were other factors at play here.  Genting Singapore took a large charge for doubtful receivables and made commentary that they were worried about the credit situation.  MPEL's receivables were also up 14% QoQ, but that was also on higher volumes and a higher percentage of direct play in the quarter.  Property stocks in Hong Kong are also taking a beating.  Mass volume was a little lower than we anticipated but higher hold percentage looks sustainable.  Finally, management didn’t handle the equity question appropriately.  The response to the question should’ve been:  “pigs will fly before we issue equity at these prices.

While November in Macau may be a disappointment relative to October and the expectations of some, continued stability in the market will allow people to conclude that $200 million in EBITDA is a good quarterly run rate which puts MPEL’s valuation at 7x – a ridiculously low valuation for a Macau stock.  Even if VIP were to drop 25% next year (which would mean a 45% sequential drop from current trends), MPEL’s multiple would still only be 9x.  We worry immensely about sentiment and investors expectations for November, but this stock is a value for those that can stomach the volatility.

CoD

CoD’s net revenue came in 1% below our estimate but Adjusted EBITDA was $2MM better due to lower fixed costs at the property and /or a favorable hold mix

  • Gross VIP table win was $1M below our estimate
    • RC volume was $600MM above our estimate due to a higher percentage of direct play- which we estimate was 16% vs. our estimate of 13%- a little surprising with the opening of the Neptune room in July
    • It appears that the rebate rate was 90bps
    • We estimate that the commission rate was 1.33%
    • If hold was 2.85%, we estimate that EBITDA would have been $8MM lower
  • Mass table win was $1MM better than we estimated
    • Mass volume was 9% below our estimate but hold was 2.5% better
    • Mass win of 25.5% was higher than the 6 & 4 quarter trailing average of 22%.  We estimate that the higher than historical mass hold boosted EBITDA by $10MM.
  • Slot win was in-line with our estimate with lower handle offset by a higher win rate
  • Non-gaming revenue, net of promotional allowances, were $4MM lower than we estimated
  • It appears that fixed operating expenses were $66MM - $4MM below our estimate.  Although we suspect that what appears to be lower fixed operating expenses is really just a favorable mix of luck on the RC business

Altira

Altira’s net revenue came in 1% below our estimate but Adjusted EBITDA was $4MM better due to lower fixed costs at the property and /or a favorable hold mix

  • Gross VIP table win was $2MM below our estimate
    • The rebate rate was .955% or .05% higher than we estimated
    • We estimate that the commission rate was 1.3%
    • If hold was 2.85%, we estimate that EBITDA would have been $7MM lower
  • Mass table win was $4MM lower than we estimated
    • Mass win of 15.7% was lower than the 6 quarter trailing average of 17%.  We estimate that the lower mass negatively impacted results by $1MM.
  • Non-gaming revenue, net of promotional allowances, were $2MM higher than we estimated
  • It appears that fixed operating expenses were $24MM - $4MM below our estimate.  Although we suspect that what appears to be lower fixed operating expenses is really just a favorable mix of luck on the RC business.