prev

SUPER SIZE ME

Takeaway: There are other ways for LVS to skin the table cap cat

Helping casinos cope with the Macau table cap

 

 

There has been a lot of chatter recently on how Macau casinos will overcome the table cap of 5,500, which is in effect until the end of March 2013.  First off, it's not a law, it's government stipulation that can be changed at any time.  One way casinos are helping to overcome this stipulation is through the placement of "super tables' each of which seats 12 people with two dealers, compared to 6-8 positions on a traditional Macau table with one dealer.

 

Here is our count of Macau super tables:

 

VENETIAN:  20

SANDS MACAU:  32

STARWORLD:  5

GALAXY MACAU: 1

 

At the end of Q2, there were 5,498 tables reported by the Macau government.  The cap has been a concern for LVS investors in particular with the opening of Phase 2 on September 20th.  Sands China is already the most aggressive with the new product to free up room for the additional 200 tables expected at Sands Cotai Central in late 2012/early 2013. 

 

SCC isn’t likely to get their new table allocations until December or January 2013.  In the meantime, they can increase the table count above the cap during Golden Week.  The good news is that the number of tables that SCC originally opened with was too high so they moved a lot of those tables back to Venetian where they are more productive.  When Ph2 opens next week they will move some of those back and take some from Sands.  What that means is that on weekends and peak times, Sands’ properties will be running at overcapacity, however, most of the time, the table shortage will not impact them as there are plenty of under-utilized tables.

 

IT'S A "SUPERTABLE"! 

 

SUPER SIZE ME - IMG 20120912 00857


AUGUST CASUAL DINING SALES TRENDS

Takeaway: Casual dining traffic continued to decelerate through August $DRI $DIN $BLMN $EAT $CAKE $BWLD $TXRH

The estimated Knapp Track numbers for August suggest a slight sequential improvement in casual dining trends from July. Traffic, however, continues to decelerate.

 

Knapp Results

 

Estimated Knapp Track casual dining comparable restaurant sales grew 0.8% in August versus an estimated 0.6% in July.  The sequential change, in terms of the two-year average trend, was -45 basis points. 

 

Estimated Knapp Track casual dining guest counts declined -1.7% in August versus an estimated -1.8% in July.  The sequential change from July to August, in terms of the two-year average trend, was -70 basis points.

 

 

Black Box Intelligence

 

Black Box Intelligence released its casual dining index comparable restaurant sales growth for August earlier this month.  Comparable sales grew 1% last month while traffic declined -1.1% and price grew 2.2%.  The Knapp-Black Box spread was at -0.2% in August, which could imply that Darden underperformed since Darden is included in Knapp but not in the Black Box data.  To be clear, there are several differences between the Knapp Track and Blackbox data sets so the spread is not a sure-fire indicator of a slowdown in Darden comps but, given the size of the Darden system, we believe that the spread between Knapp Track and Blackbox is likely relevant for Darden’s top line trends.  The spread was +0.8% in February, which was a strong month for Darden (Red Lobster, in particular).  Since then, however, the spread has been negative through August.

 

 

Pricing Power Pressure

 

The restaurant industry’s pricing power is under pressure, currently, as Food at Home CPI is now well below Food Away from Home CPI on a year-over-year basis.   

 

AUGUST CASUAL DINING SALES TRENDS - food at home vs food away from home cpi

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


REMINDER: EXPERT CALL AT 11AM ON EMISSIONS

Takeaway: Expert Call on $NAV's emissions situation @11AM. It is not as simple as it looks and it doesn't look simple at all.

Participant Dialing Instructions

Toll Free Number:

Direct Dial Number:

Conference Code: 952591#

 

Conference Call Today at 11am EST


Focus on NAV emissions strategy. PCAR,CAT

 

TOPICS WILL INCLUDE

  • Navistar's Emissions Situation
  • Drivers and Direction of EPA Policy
  • Potential Election Impact
  • Heavy & Light Vehicle Emissions Standards
  • Policy for Off-Road Vehicles
  • Impact of Power Plant Emissions Rulings
  • Other questions from the audience

DICK PENNA EXPERT ON NAV

In addition to his substantial emissions-related Bio, we chose to do a call with him because he represented Volvo in its suit against the EPA regarding Navistars non-conformance penalties.

 

WHY NAV IS IMPORTANT

Navistar has 18pct of the Class 8 market and a losing product strategy, in our view.  Additional lawsuits against the EPA's new non-conformance penalty regime would undermine Navistar's claim that the issues are now settled.  That notion - that the EPA issues are now settled - is what they are saying in the market place to sell trucks. If it turns out not to be true (even in relatively minor ways), it could further jeopardize the already shaky confidence customers have in the brand.  That is a win for PCAR, Volvo and Daimer, and NAV has a lot of share that it could lose. New new (ie higher) non-conformance penalties may also directly undermine NAV's products. There is even risk that the NCP concept itself could be over-turned.

 

CLASS 8

Dick will also discuss class 8 emissions in general, as well as the likely direction of regulation post 2018.

 

CAT

We will touch on Tier IV regulations, a possible driver of prebuy activity at CAT and other off-road engine manufacturers.

 

LIGHT-DUTY

Dick actively worked on the new light-duty regulations. We will discuss the broader supply chain effects and the potential election impact.

 

 


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

PCAR:Truck Orders Lead Production Changes

Takeaway: $PCAR: Production cuts come from weak orders months ago - no surprise. Trading on production is like driving with the rear-view mirror.

 

Truck Orders Lead Production Changes: 

Trading on production announcements is like driving with the rear-view mirror.

 

“This is evident in strong sales of aftermarket parts and services and excellent performance at PACCAR Financial Services. Industry orders for new trucks in North America have slowed in recent months as customers evaluate the mixed signals of a sluggish economic recovery,” – PCAR CEO Mark Pigott in 9/11/12 press release.

 

  • Orders Lead, Production Lags: PCAR increased the amount of production cuts in 3Q from 10% to 15%-20% vs. 2Q.  That should not be surprising because truck orders have been below build rates for the industry for months.  Production cuts of at least this size are the correct and necessary response.
  • Cuts All Around:  All four Class 8 manufacturers will cut NA production.  Navistar appears to be taking the most aggressive approach to capacity reductions.
  • NA Orders Below Replacement Demand:  Truck earnings are far from peak levels, unlike, say, mining equipment profits.  Buying cyclicals when orders have been weak and production is being cut is likely to work much better than buying them at peak profits when the outlook has never been better. 
  • Fleet Age Increases: Our thesis is that the NA Class 8 fleet will remain elevated and probably age further.  This is what the stock has historically correlated with – not margins or truck sales.  Yes, lower production will result in lower margins and if an investor follows that, they will get the stock wrong.  An aging fleet will drive higher parts revenue and more stable financial services returns.  PCAR specifically referenced those trends in the quote above. 
  • PCAR a Top Idea: Share losses by NAV, greatly reduced pre-buy activity and an aging fleet, in addition to other factors, position PCAR to be a top performer, in our view.  See our August 16th Black Book on truck OEMs for details.

Central Planners With Attitude

CENTRAL PLANNERS WITH ATTITUDE 

 

 

CLIENT TALKING POINTS

 

VISITING THE PAST

Sometimes when you begin to examine the market, you see a pattern or movements that remind you of years past. For instance, back in 2008 when the crisis was in full swing, a lot of people brought up dates like 1987 and 2001. Those were big events where the market took a turn for the worse and made a lot of people feel sick to their stomachs. To us, this market feels somewhat similar to the aforementioned years. It’s toppy. The S&P 500 can’t seem to keep it together above 1438 (we went short SPY at 1437). If you’re still playing the game of saying stocks are up year-to-date, it’s time to cut that out. Even after the crash of ’87 stocks were still up year-to-date despite a -23% down day.

 

 

CENTRAL PLANNERS WITH ATTITUDE

Central planners are popping caffeine pills and getting to work these days. There is no rest for the wicked. Bernanke is busy pushing 0% rates out until 2015 and will probably push them even further should he need to appease market participants even further. The argument is still the same: “Let me drop some QE into this market and you’ll have stocks and commodities rally!” The short-term stock gains don’t seem worth the pain at the pump and grocery store that the rest of America has to face. $150 oil just perpetuates slowing growth and that’s not something anyone wants, is it? 

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                UP

 

U.S. Equities:   Flat

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  DOWN

 

Int'l Currencies: Flat

 

 

_______________________________________________________

 

TOP LONG IDEAS

 

NIKE (NKE)

Nike’s challenges are well-telegraphed. But the reality is that its top line is extremely strong, and the Olympics has just given Nike all the ammo it needs to marry product with marketing and grow in the 10% range for the next 2 years. With margin pressures easing, and Cole Haan and Umbro soon to be divested, the model is getting more focused and profitable.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG            

 

PACCAR (PCAR)

Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG

 

LAS VEGAS SANDS (LVS)

LVS finally reached and has maintained its 20% Macau gaming share, thanks to Sands Cotai Central (SCC). With SCC continuing to ramp up, we expect that level to hold and maybe, even improve. Macau sentiment has reached a yearly low but we see improvement ahead.

  • TRADE:  LONG
  • TREND:  NEUTRAL
  • TAIL:      NEUTRAL

  

_______________________________________________________

 

THREE FOR THE ROAD

 

TWEET OF THE DAY

“Another nail to the heart of the#EfficientMarketHypothesisfxn.ws/QicZqh. Not that's it's needed.#EMH has been dead for a long time” -@JamesGRickards

 

 

QUOTE OF THE DAY

“A thought is often original, though you have uttered it a hundred times.” –Oliver Wendell Holmes

                       

 

STAT OF THE DAY

$104 million. The payout for a former whistleblower at UBS who altered US authorities to the firm’s tax evasion practices.

 

 

 


THE M3: AMBROSE SO; HIGHEST RWS FINE; MGM COTAI

The Macau Metro Monitor, September 12, 2012

 

 

SJM EXECUTIVE UPBEAT ON GAMING REVENUE DESPITE DIP IN VISITORS Macau Daily News, Macau Daily Times

SJM CEO Ambrose So said, “The new arrangements (relaxation on entry permits by six cities) will bring additional visitors; I think the city can handle 30 million visitors. After 10 days of implementation, we see a slight increase of visitors, which benefits both the mass market and VIP sectors. But we need to see a more long-term trend to see the effects, we can't judge by a few days. It’s hard to find a formula to calculate the [relation between] visitor numbers and the increase in gaming revenues. There may be fewer people coming but they may be spending more. There’s no rush to see the impact of the single-digit growth (in visitor arrivals) forecast. We should get a better picture after one quarter."

 

Regarding the Sheraton opening next Thursday at SCC, So said it was only natural that Sands China’s market share would grow.  “Concern is one thing, but we have our own strategies,” So said, explaining that since the peninsula was more gaming-focused and Cotai was more resort-oriented, there was no direct competition between the two areas.  However, he admitted that SJM would have to “reposition” itself to meet the changes in customers’ expectations and gaming behavior when the company will have its property up and running in Cotai, possibly in three years’ time. 

 

So also thinks that China's 12th Five-Year Plan will bring more diversification to Macau.  “The Hengqin Island will bring an important support for the development of Macau’s non-gaming sectors so that tourists can stay longer,” he remarked.  With the construction of the Guangzhou-Macau train and the Hong Kong-Zhuhai-Macau bridge, he expects Macau to definitively become a center for world tourism. 

 

“We always have interests in parcels seven and eight in Taipa, but Sands is having some legal arrangements with the government now over the land”. He stated that within the gaming sector, “we have great advantages, because we know the market. We have close relationships with the government, we are local. Most tourists are from China, we know their taste. We can reposition ourselves when we build a new property in Cotai.”  However, he denied obtaining any advantages from the Las Vegas Sands’ lawsuit: “The only advantage that we have is not having any lawsuit.”  As to the planned casino in Taipa, he explained, “it will take at least two to three years before SJM's casino is built in Taipa; we're waiting for the details.”  So also sees no urgent need to employ foreign labor, mentioning that SJM has the highest rate of local employees in Macau at 95%.  

 

CASINO REGULATOR PENALIZES RWS WITH HIGHEST SINGLE FINE TO DATE TodayOnline, Reuters

Resorts World Sentosa has been fined S$600,000, the highest single financial penalty imposed to date by the Casino Regulatory Authority (CRA), for partially reimbursing local casino patrons their annual entry levy.  TODAY first reported the CRA's probe against RWS over illegal reimbursements in July.  The CRA said in a statement today it received information from members of the public that they had received complimentary Universal Studios Singapore (USS) tickets when they renewed their annual entry levies.  CRA has referred the matter to the police's white collar crime unit, as the cases involved possible forgery, it said

 

MGM'S COTAI LAND APPLICATION GOING "SMOOTHLY" Macau Business

MGM China co-chairwoman, Pansy Ho, said the company’s application for a piece of land in Cotai continues to go “smoothly”.  Ho added that MGM Cotai will have more non-gaming areas than MGM Macau.  Ho also admitted that, as other Asian jurisdictions legalize gaming or reinforce their bet on the industry, Macau is poised to face more regional competition.


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

next