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.
