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Hold adjusted RWS Q4 EBITDA of S$300 million was extremely disappointing. Cautious tone on near term.



"The economic challenges in Europe and the United States of America continue to cloud the short-term outlook of the Asian economies. As the next 12 months remain volatile, we continue to remain cautious in our dealings and prudent in our approach."




  • Announced a dividend of 1 cent per share - way of saying thank you to shareholders
  • Got an A- from Fitch and a BBB- from Moody's
  • VIP business was in-line with their expectations and cautious lending outlook
  • 3.9% hold in 4Q
  • Transformers opening helped USS visitation
  • MICE operations: They welcomed more than 1MM visitors and hosted more than 200 events in 2011. 
  • Once construction is complete, management will be able to completely focus on revenue growth - including pursing new projects
  • Singapore dollar denominated perpetual preferred? 
    • 5 banks are the book runners on this offering and for this purpose, they have obtained credit ratings
    • No comment on use of proceeds or offering size
  • QoQ change in RC volume?
    • down 26% QoQ but win was higher because win was 3.9%
    • They notice when they have high hold, they have lower volumes
    • They have also taken a more cautious tone on credit extension, and you can see that in their provisions as well which have come down dramatically
  • They are still remaining cautious for the next 2 quarters with respect to credit extension but cautiously optimistic on 2H12
  • Only put in full complement of their new ETG's and slots in early February.  Can only have 2,500 machines. They were just a little shy of 2,500 machines.
  • Mass was down a little (2%). 
  • What was their rebate in 4Q? 
    • 1.2-1.3% range - hasn't really moved that much Q to Q
  • 4Q: 2,051 slot machines on average
  • VIP: Decline in 4Q - was it seasonal? 
    • They don't really know. They don't have enough operating history. 
    • They did pull back their credit extension so they are unclear how much impact that had
    • Without junkets they don't expect to see much growth in the VIP market
  • Expect the market to grow with junkets
  • If they are looking to project, they would look at all of 2011 and perhaps overweight trends in the 4th quarter
  • Lower impairments and lower credit risk is not the new norm either. Risk taking has a lot to do with their assessment of the overall economic environment.  Expect to take more risk later this year
  • The dividend was a show that they are cognizant of investor's desire of a dividend. 1 cent is not small compared to their EPS of 8 cents per share.  Growing the dividend depends on their assessment of growth opportunities
  • Net gaming revenue breakout
    • VIP: 44%
    • Mass: 56%
  • Gross VIP win is 52% of total gross win
  • Hold adjusted EBITDA using 2.85%: S$300MM
  • Still optimistic on junket approval
  • The visitation numbers to their casino were pretty steady.  VIP visitation and volume aren't very correlated though.
  • 80-90% of the people who come to the casino are coming from outside of Singapore
  • Still expect junkets to get approved in the next few months
  • Can't really compare their current margins to 2010 results since their non-gaming amenities weren't open then. Their non-gaming amenities have lower margins than the gaming business.
  • They have a lot of employees in the Marine Life Park and training them, but there is no associated revenue and won't be until the Park is fully open in the 4th Q
  • 2012 is going to be a transitional year for them since there are many employees (life guards, veterinary professionals, etc) that don't really exist in Singapore and therefore they need an extended training period.  Hired about 600 incremental employees between the Marine Life Park and the hotels that opened.
  • There will likely be some more rooms opening at Equarius which will reach 200 rooms
  • The Park will open in late 3Q.  In about 4 weeks time, they will start filling the tanks with water.  Have a quarantine center for animals... want to be very careful. By end of May they will fill the larger tanks. The tanks need to be flushed and cultured with good bacteria. Only once the water is stable they will start putting the fish in.  When the animals come into Singapore they first need to go into a quarantine center (2-4 weeks). 
  • Japan: somewhat optimistic that something may pass in Japan. They continue to track the development there as well as seriously looking at a few opportunities elsewhere. 
  • They have 559 total tables
  • Dec 31: 1502 slots and 549 ETG's
  • Mass share was 46% on the volume side (for slots as well); GGR share was 47%
  • The West zone has a very tropical and laid back setting - more of a Bali setting. 
    • They did a soft opening with 4-5 villas during CNY and their clients were very happy. They still aren't completely open yet.
    • Originally they were going to target the ME & and Eastern European market, but the Chinese customers also like it
  • Slot ramp from 3rd to 4th quarter? 
    • Win per slot went up a little bit despite the addition of new machines
  • There will be no new project announcements from them until 2H2012: The projects that they are looking at range from an equity commitment of S$500 to S$3/4BN.
  • 1/3 of the tables are VIP
  • December is a holiday month- they see a lot of traffic into the casino and the resort
  • Market share of RC: 47% 
  • By CNY they actually had 12 villas ready but decided to only open 4/5 of them - given the vegetation looking scrawny. It's very difficult to know how much impact the villas will contribute. To date only 12 customers have stayed in those Villas.
  • Half of the Equarius hotel is currently open and it is also meant for VIPs
  • Capex for 2012: S$600MM
  • Maintenance capex should be S$100-200MM once everything is complete. 
  • They will pursue opportunities anywhere in the world? Genting Malaysia has spend a lot of money in NY and they also bought the site in Miami - so they don't really have much money left to pursue new projects. They are the only other subsidiary of the Genting Group with any kind of real fire power so they would be the vehicle with which the Group would pursue any new opportunities globally
  • They do not intend to be at the S$300MM level for EBITDA in future quarters. The S$400MM level has been pretty consistent for them and should continue to see that kind of level/ floor



  • Genting Singapore reporting Adjusted EBITDA of S$398.8MM and revenues of S$786.3MM
    • RWS Adjusted EBITDA of S$405.9MM and revenue of S$782.5MM
      • S$644.8MM from gaming revenue and S$137.7MM from nom-gaming revenues
  • USS drove non-gaming growth with 10,250 daily visitors and average spend per visitor of S$86/day
  • Hotel occupancy was 89% with ADR of S$322
  • "The higher profit was attributable to the higher adjusted EBITDA of Singapore IR by 8% due to the lower impairment loss on trade receivable by S$36.2 million; and lower tax charge."
  • 2011 Capex:S$1,234MM 
  • "Equarius Hotel and selected Beach Villas opened in February 2012. The rest of the West Zone comprising a world-class destination Spa, Water Park, one of the world’s largest Marine Life Parks and the Aquarium will be fully operational by the second half of the year. With this last phase of development, the resort will be fully completed in 2012"
  • "Genting Singapore’s efforts are focused towards identifying, evaluating and investing in new projects that provide revenue growth and net income streams to the Group. The continuing uncertain economic climate also presents some potentially attractive investment opportunities."

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Hedging the Bernank: TIP Trade Update

Conclusion: Real time data is continuing to suggest to us that inflation is set to accelerate, making inflation protection, via TIPS, a  compelling addition to our Virtual Portfolio against the backdrop of rising inflationary pressures.


Position: Long Treasury Inflation Protection via the iShares Barclays TIPS Bond Fund ETF.


While Keynesian economics continues to support the resolve of Western officials to perpetuate short-term asset inflation, we continue to highlight the tax on growth that is rising consumer and producer price inflation, as well as accelerating inflation expectations. The price of crude oil remains a real-time quote for the taxation of global fixed capital formation, industrial production, and consumption.


Looking to the U.S. fixed income markets specifically, inflation expectations are indeed accelerating. The 5yr Breakeven Inflation Rates are being priced at 2.03%, up from +1.55% at the start of the year. This +24bps increase since the FOMC’s decision to extend “exceptionally low levels of the federal funds rate at least through 2014” on JAN 25 outpaces the +1bps move in the 27 days following Jackson Hole 2010. As such, on a relative basis, long-term inflation expectations are rising fairly rapidly.


Hedging the Bernank: TIP Trade Update - 1


Looking to nominal Treasury yields, both 2s and 10s are testing our intermediate-term TREND-lines of resistance. Just as we concluded in 1Q11, we contend these are not signals for accelerating economic demand, but rather a signal that bond market may be starting to price in this marginal shift in the outlook for the real returns of Treasury yields.


Hedging the Bernank: TIP Trade Update - 2


Hedging the Bernank: TIP Trade Update - 3


We tend to view inflation differently than the government measure of CPI, which has been altered a bevy of times in the past 20yrs (we believe this is done by design to limit Social Security cost-of-living adjustments). From our perspective, the best measure of actual inflation, as experienced by the consumer, is the spread between headline consumer price inflation and nominal wage growth. That is: what consumers have to spend versus what they earn. 


On this measure, JAN ’12 registered as the first sequential acceleration since SEP ’11. In particular, that’s an explicitly negative data point for the 15.1% of Americans living in poverty, as officially defined by the Census Bureau. Accelerating headline inflation disproportionately impacts the lower end of the socioeconomic spectrum, as outlays for food and energy typically garner a higher share of that consumer's wallet. 


Hedging the Bernank: TIP Trade Update - 4


All told, we continue to see the need for hedging our Virtual Portfolio against upside inflation risks, given the updated economic policies of the current U.S. administration and appointed officials. Our quantitative risk management levels on the TIP ETF are included in the chart below.


Darius Dale

Senior Analyst


Hedging the Bernank: TIP Trade Update - 5


WATCH JAPAN CLOSELY IN MARCH  - Screen Shot 2012 02 21 at 3.55.43 PM



At Hedgeye, we monitor key global market, economic and political events, and assess the potential macro risk or reward that each of these events might have. One event in particular, the maturation of Japanese government debt in March, has us sitting up and taking notice. That’s because a significant amount of marketable Japanese government bonds (JGBs) mature next month, and those maturities may be a global macro risk that is currently being underestimated.


While Japan certainly does not face an imminent sovereign debt crisis, for the first time in many years, the fact that there’s even a mention of such a potential crisis is worth noting.


Again, we are not saying such a crisis will happen, but the perception around Japan’s sovereign debt load may be at an inflection for a number of reasons, including:

  • Japan’s current account: For years, the country’s run a healthy current account surplus, but that’s no longer the case. As the current account erodes, strains will emerge as the country looks to finance its ever-expanding public debt.
  • Possibility of a sovereign debt downgrade: If such a downgrade happens, it will trigger capital raises across the Japanese banking system to the tune of roughly $80 billion.
  • Acceleration of inflation: Long-term inflation expectations could rise as the Bank of Japan (BOJ) may look to alter its mandate and dramatically increase its purchases of JGBs.
  • Rapidly deteriorating government credibility: Most market participants worry that the Japanese government has no credible plan to solve the country’s fiscal woes.

In another sign of weakness, just today Japan reported its widest-ever monthly trade deficit. In the coming weeks, we will keep you abreast of other important events that will shape the future of the Japanese economy.

Retail: Tuesday’s Foursome


Mass (WMT) underperforms while high-end (M & SKS) charges on consistent with recent trends.


In light of HD’s strong quarter as well as M and SKS coming in better than expected, WMT’s underperformance is the clear callout from today’s earnings. Consistent with what we’ve been seeing across retail, inventory growth outpaced sales growth with HD the sole exception. That’s gross margin bearish for those companies not named HD. Interestingly, M cited a decision to hold onto cold weather apparel while SKS noted earlier receipts of Spring orders as a contributor to higher inventory levels at year-end - decisions don't that have the same risk profile. While HD and SKS both highlighted a more benign promotional environment, the mass channel continues to be highly price competitive and remains at greatest risk in the 1H from a margin perspective.


The most notable thematic category callout is undoubtedly Home. Yes, HD posted big numbers this quarter, but more notable was WMT posting the first positive comp in the Home category in over 2.5 years and M also highlighting category strength.



Here are a few company specific takeaways:


WMT: Walmart posted its second consecutive miss in as many quarters for the first time in five years reflecting a sequential revenue deceleration across all businesses despite favorable layaway sales. Headwinds in the form of tougher top-line comps and higher gas prices will remain challenging near-term. In addition, higher inventory levels driven by international growth up 25% was not simply due to Fx and acquisitions, which accounted for only 6pts of growth in the quarter. Despite favorable gross margin comps over the next few quarters, this development is gross margin bearish near-term.

  • Inventory growth (+11.7%) not just acquisition related; int’l +18.6% ex Fx and Acq.
  • Called out strength in basics category in Apparel.
  • Home category posted first positive comp in 2.5yrs.
  • Repurchased 23mm shs in Q4 = 115mm F12 = 3.2% of F11 shares outstanding and remains on track to go private within the next 9-10yrs.
  • Outlook:
    • 1Q13 guidance $1.01-$1.06 vs. $1.05E
      • WMT US comps flat -to-+2%
      • Sam's Club +3%-5%
    • FY13 guidance $4.72-$4.92 vs. $4.90E

Retail: Tuesday’s Foursome - WMT


HD: Home Depot posted strong Q4 earnings of $0.50 ex items vs. $0.42E driven by notable top line performance with comps up +5.7% (vs. 2.2E). Strength in the top line was driven primarily by unseasonably warm weather (positive 200-250 bps impact in Q4) and resulted in a meaningful 200 bps acceleration in the underlying  2yr trend. The intermediate term setup over the next three quarters becomes progressively more favorable for both the top and bottom line with inventories well positioned into 2012 down 30 bps sequentially to -2.8% yy.

  • HD leveraged SG&A nearly 100bps which, combined with gross margin expansion (+29bps vs. +26bpsE) drove operating margin expansion ahead of expectations +145bps vs. +68bpsE.
  • Guided FY2012 EPS to $2.79 vs. $2.76E with the top line targeted to grow 4% vs. 3%E; Operating margin is expected to expand +50bps breaching the 10% margin rate one year ahead of the long term goal.
  • 2012 promotional cadence expected to see no major differences relative to 2011.
  • Management was “very pleased” with February trends Month-to date (Note: February comp is the most difficult in Q1 coming off 10% growth in January US store comp).
  • 13/14 departments posted positive comps (8/13 outperformed the company average & 13/14 saw positive growth in total transactions) – Millwork sole negative underperforming dept.
  • Positive comps in all 40 top US Markets- FL & CA saw 8thconsecutive quarter of comp growth indicative of widespread performance in markets less effected by weather related abnormalities.

Retail: Tuesday’s Foursome - HD SIGMA


M: EPS came in above expectations $1.70 (adj) vs. $1.65E driven by slightly better than expected gross margins (-33 bps vs. -50bpsE) and SG&A leverage.

  • AURs +9%; Transactions +1%; UPT -4%.
  • Starting to see impact of omni channel strategy benefit inventory turnover, which will be a key driver of gross margin expansion in ’12 as M enables nearly 300 stores to ship directly.
  • Expect DTC to maintain current growth rates and exceed $2Bn in ’12.
  • Q: Can you update us on price optimization?:A: “It's proven to be a little more complicated than we originally thought, but initial tests are looking good.” Needless to say, this initiative is not expected to yield benefits until 2H, but management appears to be hedging the magnitude a bit.
  • Inventories were up +7.5% (down -2.1% seq) reflecting decision to hold onto cold weather apparel longer than usual. This could prove to be a savvy call, or added overhang in Q1. TBD.
  • M Guided FY2012 EPS to $3.25-$3.30 vs. $3.27 and Comps +3.5% vs. +3.3E

Retail: Tuesday’s Foursome - M SIGMA


SKS: EPS came in above expectations $0.17 (adj) vs. $0.14E driven by better than expected revenue growth (+6.8% vs. +4.5%E) and tight cost control (SG&A +4.7% vs. 15%E) offsetting weaker than expected gross margins (GM -21bps vs. -10bpsE).

  • Categories of strength: women’s and men’s contemporary apparel, handbags, fine jewelry, fragrances, and men’s accessories
  • NYC Flagship comps in-line with corporate avg.
  • Project Evolution – SKS’ shift towards becoming an omni channel retailer will account for $30mm of total $110-$120mm in F12 CapEx and another $8mm in SG&A.
  • Within read-to-wear, full-price selling is currently below expectations and could pressure Q2 GMs if persistent when seasonal clearance occurs. Thought to be a fashion move away from more classic brands.
  • More notably in aggregate across categories, full-price selling is back to or above pre-recession levels.
  • Inventories +7.5% (up 1.3pts seq) reflect earlier receipt of Spring orders accounting for ~1.5pts of increase. Which would you prefer to have on-hand, leftover winter apparel or upcoming Spring product? The tale of the tape will be gauged by the thermometer in Q1 between SKS and M.
  • Maintaining 8% Operating margin goal and believe they can get there with current store base.
  • SKS expects FY 2012 comps to be +5%-7% vs. 4.8E with Gross Margin up modestly over 40.8% in FY11 vs. +17E and SG&A as a percent of sales to be flat

Retail: Tuesday’s Foursome - SKS


Casey Flavin & Matt Darula



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 80.48%
  • SHORT SIGNALS 78.35%