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But hard to get excited about a flat 2012.




As management said on their last conference call, don’t expect much from 2012.  We get that their focus will be on long term prospects for the Company and opening up the rest of their Resorts World development.  However, we don’t see why those goals are mutually exclusive.  Market growth will be an issue in 2012.  Even though this message isn’t exactly new, the Street is still modeling 8% EBITDA growth for 2012 while we are estimating a decline of 4% with RWS EBITDA of just over $1.6BN. 


While we are concerned about the near term, the longer term story for Genting Singapore is brighter.  Namely, the company will likely be announcing a significant project in the second half of 2012.  They are no longer geographically restricted in their investment universe since their sister company has used its dry powder towards Genting Resorts NY and a potential large development in Miami.  Genting stated that the equity investment size would be between S$500-750MM (total ballpark project size of~S$2BN). 


Genting Singapore would likely not develop in the Philippines since there is a Resorts World property already there.  We believe that Japan is too far away from approval to announce a capital raise.  Therefore, our best guess is that the new project will be in Vietnam.  During the ASEAN conference in September 2011, Vietnam was listed as one of two future opportunities for new development.  If Genting can generate similar returns to the 28% ROI generated on RWS in its first full year of operations with an incomplete property, we believe that a new announcement should serve as a positive catalyst for the stock.


Meanwhile, the longer term outlook for RWS is quite positive.  We believe that the Marine Life Park & Aquarium should contribute close to S$300MM of revenues and over S$85MM of EBITDA to RWS by 2014.  While harder to estimate, the contribution from an additional 175 VIP rooms at Equarius and 22 villas should also help drive VIP growth given the lodging capacity constraints at the property and market.  The likelihood of junket approval, even if more tame than the Macau breed, should also help VIP growth in the future.  For all of these reasons, we believe that EBITDA of S$1.8BN could be a surmountable hurdle in 2013.




Based on our conversation with Genting management we have made the following modifications to our observations of 4Q11 from what we wrote on 2/27/2012 in “GENTING BLOWS IT.”


We estimate that gross gaming revenue (“GGR”) was S$903MM

  • VIP gross revenue of S$467MM and net VIP revenue of S$286MM
    • Rebate rate of 1.33%
  • Slot and mass table revenue down 5% QoQ, with slot up QoQ and up on a win per unit basis and mass table down
    • Gross mass table revenue of S$275MM
    • We estimate gaming points were S$50MM or 3.9% of our estimated drop
    • Estimated drop of S$1,375MM and win of 21.7%
  • S$162MM of revenue from gaming machines (slots & EGTs)
    • Estimated handle of S$3.38BN
  • S$258MM of rebates, GST & gaming points
  • Gaming taxes: S$84MM
  • Estimated fixed expenses: S$186MM


Based on last quarter’s results and the benefit from high hold in 2011, we have a hard time seeing how the company will manage to grow EBITDA in 2012.  In 2011, RWS VIP held at 3.34%, which we estimate boosted net revenues by $200MM and EBITDA by $190MM, assuming that normal hold is 3%.  Hold at RWS since opening has been 3.19%.

  • S$2,561 of net gaming revenue
    • Net VIP revenue of S$974MM
      • RC volume of S$62.4BN and hold of 3%
        • We’re modeling declines in 1H12 followed by 10% growth in 2H12
      • Rebate of 1.3%
      • Our numbers don’t assume any benefit from junkets getting approved even though Genting is optimistic that junkets will be approved in the near future.  Our understanding is that prior to the junkets getting approved, there needs to be an amendment made to the Casino Control Act which will define under what conditions junkets can grant credit to patrons.  The CRA needs to draft this amendment and then it would have to be approved by Parliament.  Therefore, If and when the amendment to the Casino Control Act goes to the Parliament floor, we will know that junket approval is right around the corner.
    • Gross Mass table revenue of S$1.2BN and S$986MM net of gaming points
      • Drop of S$5.55BN and 21.5% hold
      • We’re modeling low-single digit declines in 1H12 and high single digit increases in 2H12. We believe that mass market is largely mature in Singapore and that RWS is being negatively impacted by the MRT stop which just opened by MBS
      • Gaming points equal to 3.75% of drop
    • S$581MM of slot win
  • Non-gaming revenue of S$676MM
    • S$164MM of room revenue
      • 1525 rooms, 90% occupancy and S$298 ADR
    • S$92MM of F&B and other revenue
    • USS revenue of S$365MM
      • 4.2MM visitors at an average daily spend of S$87
    • Minimal Marine life Park & Aquarium contribution of S$56MM
      • Assume a mid-3rd quarter opening
      • 1.1MM visitors ramping to 4MM in 2013
      • Average daily spend per visitor of S$52
      • 2013 margins expanding to 25-30%
  • Marine Life Park & Aquarium assumptions:
    • As a point of reference, the only other Marine Park / Aquarium of comparable scale in Asia is Ocean Park Hong Kong, whose attractions include a marine mammal park, oceanarium, animal theme park and amusement park.
    • In 2007/2008 the park received 5.0MM visitors, more than the 4.5MM visitors to HK Disneyland. 
      • RWS USS had 3.4MM visitors in 2011, however, not all of the rides were fully open until the end of the year.  We estimate that visitation in 2012 should hit 4.4MM. 
    • The cost of admission to Ocean Park HK is HK$280 (S$46) for adults and half that amount for children between the age of 3-11 which compares to a HK$399 (S$66) for adults and HK$285 for children (3-11). 
      • USS Sentosa is priced at a S$2 premium (roughly in-line) with HK Disney. 

FL Q4 Preview


Conclusion: We expect a good Q4 out of FL Thursday. With heightened anticipation over Hicks’ new long-term strategic plan to be unveiled at next week’s analyst day we don’t expect near-term momentum to slow just yet. That’s a consensus call, but we think the consensus is right.



TRADE (3-Weeks or Less):

We’re at $0.55 for FL on a comp assumption of +8% for the quarter headed into Thursday’s print, which is ahead of the Street at $0.51 and +6.5% respectively. The latest NPD data which is a component of our (statistically-valid) comp predictive model, supports our above consensus view.

  • Sales held in at a MSD rate in January to end the quarter up +7% in the Athletic Specialty channel outpacing the total industry. As a result we have increased our comp expectations by 1pt to +8%.
  • In light of sales coming in stronger at quarter end, we have increased our GM estimates to 100bps over last year driven by +80bps in occupancy leverage and +20bps from merchandise margin.
  • The modest upside in merchandise margin reflects a sequential deceleration in light of the change in promotional cadence and store events that were lapped in Q4.
  • We expect SG&A to come in up +6.5% yy in Q4 reflecting +8% core growth spending offset in part by $4-$5mm in Fx benefit.

TREND (3-Months or More):

We’ve had 10% comps over the past year, 40% EBIT growth, and seven consecutive quarters of improvement in the sales/inventory spread. It’s worth noting that over this precise seven quarter period, FL has beaten every quarter by a weighted average of 32%.


Growth will slow on the margin as FL faces increasingly tougher comps in the 1H in addition to slower growth out of Europe limiting significant upside surprises to earnings over the intermediate-term.


TAIL (3-Years or Less):

Hicks delivered on his 5-year plan 3-years ahead of schedule. The company is hosting an analyst meeting next week on March 6thto outline its new strategic plan. We expect the focus to remain on the next leg of improving apparel assortment and mix, growing the international store footprint (more productive than domestic base), and expanding its digital platform one part of FL’s business that we think is truly underappreciated.


We expect the company to earn $2.35 in F13 and generate mid-teens earnings growth over the next 2-3 years. That gets you a low-to-mid $30s stock. If Hicks throws out goals of 10% EBIT margins as expected and sales/avg. sq. ft. of $450+ and $6.5Bn in sales, investors will start looking at $2.75 in earnings power, and a $40 stock. We’ll see what’s unveiled next week.


Casey Flavin


FL Q4 Preview - FL sentiment 2.27.12


FL Q4 Preview - FL SSS Comp


FL Q4 Preview - FL S


We’re still not sold.



“There appears to be little or no equity value in Caesars' core business given the ugly financials. Yet the IPO prospectus shows Caesars carved out its online business, including the World Series of Poker, into a separate unit unencumbered by debt. This means Caesars equity holders should get - all the online profits; hence the investor focus.”

  • Andrew Barry, Barron’s

In the Barron’s article “Is Caesar’s a Sucker’s Bet”, journalist Andrew Barry suggested that the online carve-out explains the post-IPO stock pop of CZR.  Before suspending disbelief, investors should consider several important points.

  • Barring a massive recovery in its core business, CZR is likely to remain cash flow negative for the foreseeable future.  There is a high likelihood that this company will need to restructure (maybe another bankruptcy) its balance sheet at some point down the road. 
  • Federal legislation now looks a lot less likely than a month ago since the “Barton Bill” did not get tacked on to payroll tax extension as many hoped.  There is still hope that HR 2366 will get tacked onto a piece of must pass legislation this year (e.g. Highway Bill), although the odds look slim.  An online gaming market developed through the State route will take longer to develop and be smaller in size.
  • Barring a spin-off of Caesar’s Interactive, any profits (which are minimal at the current time) coming from this business will go into the general pool of cash used to pay CZR’s massive interest obligations of $1.6BN on debt of $23 billion.
  • A spin-off of Caesar’s Interactive poses material tax consequences for both Caesar’s Entertainment and its shareholders unless they can effect a tax-free spin under Section 355
  • While it is true that Caesar’s Interactive has no debt, that doesn’t mean that it is truly “unencumbered.”  CZR’s secured lenders at the operating company and CMBS entity have upstream guarantees secured by stock in Caesar’s Entertainment Corporation (CEC) and thereby an indirect claim to anything that CEC owns.  If a spin-off occurs, and debt holders don’t receive consideration for their stake, they have a strong case of fraudulent conveyance should CZRs eventually file.  Even if no filing occurs, there are likely to be lawsuits brought by debt holders to either prevent a spin-off or to get a piece of the proceeds.

Since the hope of Federal legislation has begun to fade, the stock has plummeted 40% off its highs.  Still at $10.54 per share CZR is valued at 12x our 2013 EBITDA estimate- a far cry from being reasonably priced.

  • A slight premium to Wynn which has much higher quality assets, an option on Cotai, more development opportunities in Asia, and happens to return a large amount of cash to shareholders
  • A slight premium to LVS which has Sands Cotai Central opening in less than 2 months, much higher asset quality, and more attractive growth opportunities
  • A 2x premium to MGM, which also has better quality Strip assets, a casino in Macau and an option on Cotai, and an option on US online gaming through its Bwin.Party agreement

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Full month GGR should come in between HK$22.5-23.0 billion for February, up 17-19% YoY. 



Average Daily Table Revenues at HK$775 million were similar to the rest of the month at HK$775 million and above even January's level.  Macau is definitely coming in hotter than expected.




The weekly market share moves were interesting, particularly Wynn.  Wynn lost 140bps in one week.  Usually, moves like that are hold related but we wonder if another factor is at play.  Our sources tell us that Wynn could be turning into persona non grata in Asia with this Okada spat.  In Macau, people are questioning whether he violated the Privacy Act which, per Portuguese law, prohibits the disclosure of customer information.  It will be interesting to get more market share data points to see if this issue impacts business.  Obviously, a one week market share drop – as precipitous as it was – is not enough to indicate a trend.


LVS and MPEL were the big market share gainers.  Clearly, with Macau’s resurgence, if sustainable, MPEL would be the prime beneficiary.  Galaxy continues to disappoint on the market share side.  Its trailing 3 month share of 19.6% was hold related so 17-18% may be more the norm and that isn’t good enough.








Comments from CEO Keith McCullough


Greece is back in the Top 3 Most Read next to Buffett pushing his politics and positions. Nice:

  1. GREECE – a not so funny thing happened on the way to the risk mgt forum – w/ Greek stocks down another -1.6% this morning (leading losers globally), they’ve gone from up +23% to +8% YTD in less than 2 weeks. Big Government Intervention perpetuates volatility. Nice.
  2. OIL – 2 down days in a row is as bullish as bullish does for Global Equity markets. Asia acted as well as it has in FEB last night and US Futures like oil down because they should – it’s good for the 71% (Consumption/GDP). The problem, of course, is that Brent and WTIC only have 2-3% downside in the immediate-term and should resume their inflations thereafter.
  3. BONDS – both the UST 10yr and the Yield Spread are telling you all you need to know about US Growth Slowing sequentially here in FEB. The Durable Goods number is a JAN print and doesn’t really matter in my model – the PMI and ISM prints for FEB (wed and thur) do. 10s failed at 2.03% TREND resist and then snapped 1.97% TRADE support. No real support now to 1.89% w/ 10s/2s Spread -4bps already for the wk-to-date.

Higher-Highs are exciting in the SP500 in the meantime (1 range). I’m trading risk aggressively and enjoying it quite thoroughly.







THE HBM: DPZ, GMCR, MCD, DRI - subsector





DPZ: Domino’s Pizza reported 4Q11 EPS of $0.52 versus consensus $0.49.  The company-owned domestic store base saw comps increase +8.7% versus consensus +7.5%.  The company raised its “long term guidance” for international comps, net units, global retail sales and capex.  Consistent with the message management sent at ICR in January, the company announced a recapitalization today.


THE HBM: DPZ, GMCR, MCD, DRI - dpz pod1



GMCR: Green Mountain coffee holder Lavazza has reduced its stake in the company to 4.99%.  In a 13-D filing, Lavazza stated that it does not currently intend to sell any additional shares.


MCD: McDonald’s is considering selling dim sum bonds in Hong Kong as one option for raising funds to expand in China.





DPZ: Domino’s traded up yesterday in anticipation of today’s print.


JACK:  Jack in the Box is hosting its Investor Day today – the first one since 2008.




DRI: Darden was maintained “Buy” at Sterne Agee.  The price target is $52.  Sterne highlighted management’s confidence in the Olive Garden turnaround.


DRI: Darden was maintained “Neutral” at DA Davidson.  The firm noted uncertainty persisting for the company’s Olive Garden business.







Howard Penney

Managing Director


Rory Green




The Macau Metro Monitor, February 28, 2012




Gaming operator Wynn Macau Ltd. may have breached the local privacy law by publicly disclosing personal information of hotel guests as part of the Freeh report on removed director Kazuo Okada.  Ben Lee, the former vice president of casino marketing at Venetian Macau, says the move may scare off some VIP promoters.


The disclosure might have breached Macau’s personal data protection law, which came into effect in 2006. The law states that personal data can only be “collected for specific, explicit and legitimate purposes (…) and it cannot later be used in a manner incompatible with those purposes”.  The Macau law also restricts the transfer of personal data outside of the territory, stressing that it can only be done if the Office for Personal Data Protection (GPDP) decides that “the legal system [of that country or territory] to where it [data] is transferred ensures an adequate level of protection”.  If a company is found guilty of breaching the privacy law then it could be slapped with a fine between MOP 10,000 and 100,000.  Moreover the person found responsible could face a one-year jail term or a 120-day fine.



"Giving comps to hotel rooms is endemic throughout the entire industry," Adelson said. "I think by getting something in the FCPA (the U.S. Foreign Corrupt Practices Act) for a hotel room doesn't mean you're going to buy that person's allegiance and buy them to do what you want for billions of dollars worth of anything. But that's the way the law is,"


Adelson said he does not think that he will gain from Okada and Wynn's feud in Japan.  "Number one, I don't believe Okada's position in Japan gave Wynn an advantage because from what I've heard from government people they want to separate casinos from pachinko - either the manufacturers or the operations - so they want to keep the two separate. I've been told they (Japanese government officials) won't consider anyone for a casino that has an interest in either manufacturing or operating pachinko."



The proposed new casino at Barangaroo would be part of a two-pronged approach by tycoon James Packer to market Sydney as a major destination to well-heeled Asian tourists.  It is understood the casino component of Packer's proposed $1 billion hotel and entertainment complex would be modeled on the exclusive Mahogany Room at Melbourne's Crown Casino.


Packer is looking to build the new casino/hotel through his Crown Group if he can  win control of Echo Entertainment - the operator of The Star in Pyrmont - after raising his stake from 4.9% to 10%.  Sources said last night the new casino would have far less tables than The Star, but would cater largely to a VIP clientele.


The Barangaroo complex would have no poker machines, but given that Echo's licence has no restriction on the number of gaming tables, it is believed the proposed hotel/casino would concentrate on table games such as baccarat.

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