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Global Growth Update – What Growth?

Conclusions:

  • Two key data points affirm our belief that global growth is, in fact, slowing.
  • With U.S. gasoline prices only a mere ~6% off of their all-time Bernanke Bubble highs (JUL ’08), it remains to be seen whether or not the Bernank can even attempt to convince even those who desire to be convinced that he can do something in the near term to arrest global economic gravity.
  • While we’re not sure what Policy to Inflate (if any) he’ll hint at tomorrow during his press conference, we are certain that any further debasement of the world’s reserve currency will lead to us getting incrementally bearish on the cyclical outlook for global growth, while at the same time getting us bullish on inflation hedges – a repeat of our post-JAN 25th strategy. 

Somewhere beneath the sell-side storytelling about “rapid emerging market demand” the U.S.’s alleged “decoupling” lies the actual data; and as we’ve been forecasting since Bernanke’s last Policy to Inflate speech on JAN 25th, that data continues to point to a general trend of slowing economic growth globally.

 

Over the last few days, we’ve received two data points that  support our fact-based claim:

  1. Singapore Non-Oil Domestic Export growth slowed in MAR to -4.3% YoY vs. +30.4% YoY prior (Lunar New Year calendar shift effects in FEB); and
  2. Hong Kong’s Export growth slowed in MAR to -6.8% YoY vs. +14.0% YoY prior (also experienced seasonal distortions in FEB due to the Lunar New Year calendar shift).

Global Growth Update – What Growth? - 1

 

Given the relatively small size of each economy (0.3% and 0.4% of world GDP, respectively), it’s easy for a Global Growth Storyteller to dismiss these data points as trivial. We would strongly caution against doing so; Singapore and Hong Kong are ostensibly the world’s two most open economies as it relates to international trade flows. Consider the following metrics:

  • Exports account for roughly 33% of Asia’s GDP in aggregate;
  • The U.S. and E.U. combine for roughly a third of Asia’s export destinations;
  • 40-50% of intra-regional trade within Asia is basic and intermediate goods meant for re-export outside of the region, increasing the U.S. and E.U. share of Asian exports to somewhere closer to 2/3rds;
  • At 211% and 223% of GDP, respectively, Singapore and Hong Kong are far and away the most export-oriented countries in Asia – far more levered to global demand than other noteworthy exporters (China: 29.6%; South Korea: 52.4%; Japan: 15.2%; Thailand: 71.3%; and Taiwan: 58.9%);
  • The ratio of Singapore and Hong Kong’s share of world exports to their individual shares of world GDP are 7.1x and 7.5x, respectively – besting the next closest economy in Asia (Malaysia) on this metric by at least 3.7 turns; and
  • Singapore and Hong Kong are home to the world’s second and third-busiest container ports, handling 28,431,100 and 23,669,242 TEUs, respectively, per the latest yearly data from the American Association of Port Authorities.

Global Growth Update – What Growth? - 2

 

As such, it’s easy to see why growth in Hong Kong and Singaporean exports has been such an accurate barometer of global end demand over the past 15yrs or so. As the chart below shows, growth in their combined exports has a coincident-to-slightly-leading (i.e. 0-2 quarters) relationship to the growth rates of World, U.S., and Eurozone GDP. In 1Q12, growth our amalgamated Singapore/Hong Kong Exports metric slowed to +0.6% YoY from +4.3% YoY in 4Q11. Based on the trailing relationships – which have been known to oscillate – this is a negative leading indicator for World, U.S., and Eurozone GDP from anywhere between 1Q12 and 3Q12.

 

Global Growth Update – What Growth? - 3

 

When global growth slows, bad things happen – such as multiple compression and incremental deterioration of sovereign fiscal ratios. And with U.S. gasoline prices only a mere ~6% off of their all-time Bernanke Bubble highs (JUL ’08), it remains to be seen whether or not the Bernank can even attempt to convince even those who desire to be convinced that he can do something in the near term to arrest global economic gravity.

 

While we’re not sure what Policy to Inflate (if any) he’ll hint at tomorrow during his press conference, we are certain that any further debasement of the world’s reserve currency will lead to us getting incrementally bearish on the cyclical outlook for global growth, while at the same time getting us bullish on inflation hedges – a repeat of our post-JAN 25th strategy.

 

Darius Dale

Senior Analyst


BYD 1Q REPORT CARD

In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance.


 

OVERALL:  BYD beat our expectations and we were way above the Street.  Forward guidance was once again overly conservative and we're surprised investors haven't caught on. 

 

Here is the report card evaluating actual results against management's assertions. 

  • 1Q PERFORMANCE
    • BETTER – 1Q came in above guidance of $0.05-0.09.  Wholly-owned Adjusted EBITDA was $95MM, well above the midpoint guidance of $88-93MM.  Borgata generated EBITDA of $39m versus guidance of $32-34MM.
  • LV LOCALS MARKET
    • SLIGHTLY WORSE:  Characterized the market at "steady" with "very modest growth" but was impacted by slightly elevated marketing expenses and low hold percentage.  Low table game hold at Orleans and Gold Coast negatively impacted EBITDA by $1MM.  With normal hold, the Locals properties would've beaten our estimate.
  • DOWNTOWN
    • SAME:  Rated play increased YoY as Hawaiian visitor play remain robust.  Fremont set a 3-yr record in F&B rev in March.  But jet fuel increased $750k.  BYD reiterated its positive outlook on the new developments on Fremont St and sees no decline in visitation. 
  • BORGATA 
    • MUCH BETTER:  In addition to beating guidance and consensus handily, management stated they have not seen any impact from the Revel opening and they expect the positive performance posted in 1Q12 to continue.  Occupancy is running above expectations and cash ADRs are doing well.
  • IP PERFORMANCE SYNERGIES
    • MUCH BETTER: Improved operating margins by 350bps without all the $5MM synergies being realized.  IP exceeded expectations and sees considerable upside in the property. 
  • MARGARITAVILLE COMPETITION
    • SAME:  Reiterated that there would be minimal, if any, impact 


Early Look

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Bearish: SP500 Levels, Refreshed

POSITIONS: Long Utilities (XLU), Short Basic Materials (XLB) and Industrials (XLI)

 

It’s hard to tell today whether the market is up on the hope that Bernanke debauches the Dollar further tomorrow or if people legitimately believe US Housing is back. Regardless, Apple looks worried (broke my $606 support) and so do my SP500 levels.

 

Across our risk management durations (TRADE, TREND, and TAIL), here are the lines that matter most: 

  1. Immediate-term TRADE resistance = 1377
  2. Immediate-term TRADE support = 1361
  3. Intermediate-term TREND support = 1349 

In other words, after a -3.7% correction (SP500 down 10 of the last 14 days), support is within sight. But so is resistance! Apple definitely has to deliver on expectations tonight. There are 56 analysts covering AAPL – 48 of them have “BUY” ratings.

 

Stay tuned.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bearish: SP500 Levels, Refreshed - SPX


BYD: BIG EBITDA BEAT

Despite the great quarter, investors fear a repeat of last quarter's conference call.  Low expectations make that outcome unlikely.

 

 

Since investors seem to be already expecting lower guidance when BYD holds its noon conference call, playing the other side might be the right strategy.  People probably shouldn't believe any Q2 guidance below the current consensus of $0.10.  We were at $0.12 and that was before BYD lowered its cost structure at a number of properties including Borgata. 

 

Consistent with our earnings preview, BYD put up a big quarter, beating our Street high EBITDA estimates by over $1m and consensus by $7.5m.  The quarter was high quality as the beat were driven at the property level - $7.6m better than consensus.  Top line was also strong, besting consensus by $7.8m.  EPS “only” exceeded consensus by 2c but a high tax rate and high interest expense cost the company 2-3c.

 

The regional markets, particularly the Imperial Palace, and Borgata were the standouts.  The newly acquired IP generated EBITDA of $12.7m versus our $9.0m estimate – corroborating management’s assertions of this being a high ROI acquisition.  Heading into the new competition from Revel, Borgata’s margin performance was impressive.  A lower cost structure certainly provides a little more comfort about Borgata’s ability to withstand the additional supply in Atlantic City.  Given the seasonal demand patterns in that market, the real impact from Revel might not be felt until Q4.  Thus, Borgata could continue to exceed consensus quarterly expectations through Q3. 

 

 

BYD: BIG EBITDA BEAT - byd1

 

BYD: BIG EBITDA BEAT - BYD2


SCC NOT IMPACTING LVS SHARE YET

No change in our April forecast

 

 

Average daily table revenues (ADTR) actually declined 2% sequentially this past week, but up 39% YoY.  There is no change to our monthly forecast of HK$23.5-24.5 million, up 18-23% YoY.  With the opening of Sands Cotai Central (SCC) and recent higher expectations, GGR probably needs to grow around 25% for the investment community to get excited. 

 

SCC NOT IMPACTING LVS SHARE YET - MACAU1

 

Surprisingly, Sands China’s share is falling below trend this month despite the opening of SCC.  Moreover, market share has gone from 17.8% to 17.2% to 16.6%, respectively, in the first 3 weeks of April, with SCC opening in the middle of week 2.  We have heard that Sands China may have played unlucky on the VIP tables and it is still too early to make any lasting judgments.  Surprisingly, WYNN and Galaxy are the clear winners so far this month.  Galaxy is maintaining the strong share it attained in March.  Galaxy Macau still looks vulnerable given its location and likely Mass overlap with SCC but so far so good for that company.   

 

SCC NOT IMPACTING LVS SHARE YET - macau2

 


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