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THE M3: MGM LOAN; TPI

The Macau Metro Monitor, October 16, 2012


 

MGM PLANS LOAN INCREASE: REPORT Macau Business

According to the International Finance Review Asia, MGM China is trying to increase a five-year syndicated loan for MGM Macau to US$2 billion (MOP16 billion) from US$1.5 billion.  MGM is hoping to finalize the deal later in October. 

 

TOURIST PRICE INDEX FOR THE 3RD QUARTER 2012 DSEC

Macau Tourist Price Index (TPI) for the third quarter of 2012 increased by 3.36% YoY to 120.54, attributable to rising charges for restaurant services and rising prices of clothing.  The Price Index of Accommodation decreased by 3.52% YoY.

 


Retail Sales . . . The Headline and the Reality

Takeaway: Retail sales numbers was goosed by a massive seasonal adjustment. On a sector basis, autos, home furnishings and online sales remain strong.

This morning the Department of Commerce reported that advanced monthly U.S. retail sales for September were $413 billion.  According to the release, retail sales rose +1.1% in September month-over-month and August was revised upwards to +1.2%.   On a year-over-year basis, retail sales were up +5.4% for the month and +4.8% for the quarter.  At face value, this is a strong report and the quarterly growth rate is slightly above the 20-year average of +4.6%.

 

In the year-to-date, there have been some interesting leaders and laggards in terms of retail sales.   The top three on a year-over-year basis for the first nine months of the year were: autos up +8.7%, furniture and home furnishing up +8.8%, and shopping online up +11.5%.  Meanwhile, the laggards for the first nine months of the year are department stores -0.4%, electronics and appliance stores up +0.1%, and pharmacies up +1.5%.  A clear take-away from the line items is that autos and home furnishings continue to outperform based on easier comps and online sales continue to take share from old line department store retailers.

 

A broader question is whether this retail number, which admittedly is a lagging indicator, tells us much about the trajectory of GDP growth in the U.S.  In the chart below we’ve compared real GDP versus retail sales going back more than twenty years.  The obvious takeaway, not surprisingly, is that they follow the same general trajectory.  

 

Retail Sales . . . The Headline and the Reality - retailsales.gdp

 

The caveat is that retail sales tends to be more volatile on the upside and downside.  Even at the +5.4% level for the quarter, retail sales won’t necessarily translate into an above average GDP growth rate.  As an example, retail sales were up 6.3% in Q1 2012 and real GDP was only up +2.0%.  In Q2 2012, retail sales fell off a cliff to +3.5% year-over-year growth rate and GDP only decelerated to +1.3%.

 

Further, even as there are likely some worthwhile takeaways from the line items highlighted in bold above, we would caution from reading too much into the “better than expected” headline figure.  Not dissimilar to the distortion we have noted in our work in non-farm payrolls, there also appears to be a distortion in the retail sales number when adjusted for seasonality. 

 

On a non-seasonally adjusted basis, September was actually down -$31.6 billion sequentially from August.  Now obviously there is seasonality, and we understand that.  The larger issue is that in last year’s delta between August and September on the non-seasonally adjusted numbers, September 2011 was only $19.0 billion less than August 2011.

 

We’ve summarized the differences between seasonal and non-seasonal numbers in the table below.   The key takeaway is that while the headline retail sales number was strong for September, it was the beneficiary of a very meaningful seasonal adjustment, so we would caution reading further into the number.  This, sadly, is consistent with much of the government data that has been released as of late.  

 

Retail Sales . . . The Headline and the Reality - retailsales

 

Daryl G. Jones

Director of Research

 


TRADE OF THE DAY: TCB

We sold TCF Financial Corporation (TCB) today at $11.20 at 10:00 AM EDT in our Real Time Alerts. For the original trade, we bought TCB at $11.10 on October 12 at 3:23 PM EDT. 

 

TRADE OF THE DAY: TCB  - image001

 

In today’s no volume market, we remained cautious holding onto long positions. On red tape, we’ll look to buy back into TCB by following the wisdom of Financials Sector Head Josh Steiner. Steiner originally wrote about TCB as a long idea on September 25:

 

“One name that should be a quiet beneficiary of this trend is TCF Financial (Ticker: TCB), which has 40% of its residential mortgage exposure in Minnesota and another 14% in Michigan. Minneapolis and Detroit are actually the second and third strongest markets in the country, respectively, on a YoY HPI basis. Moreover, the bottom tier (bottom third) of Minneapolis is up 23% YoY, which is a better proxy for TCF's exposure.“

 

Trade Of the Day is a note we put out each weekday highlighting a trade that occurs in our Real Time Alerts product. Every trade is timestamped for accuracy and full transparency. If you’re interested in getting the whole picture behind the trade and our real time ideas and alerts, check out the sign up page


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WYNN: MACAU TO DRIVE A DECENT Q3

Similar to LVS, we are expecting an EBITDA and EPS beat.

 

 

We estimate that Wynn Resorts will report $1,306MM of net revenue and $376MM of EBITDA, in-line and 2% ahead of the Street, respectively.  We think the catalysts are lining up generally positive for the Macau operators although we would caution that Wynn’s share is very low month- to-date in October and while that is mostly due to hold, we would expect continued pressure on volume share both in Mass and VIP.

 

 

Q2 Detail:

 

We estimate that Wynn Macau will produce $927MM of net revenue and $291MM of EBITDA (2% above consensus)

  • Net casino revenue of $869MM
    • $606MM of net VIP win
      • Assuming 10% direct play, RC volume of $27BN
        • Down 14% YoY—the 2nd YoY decline since 2Q09; and
        • Down 11% QoQ—the 2nd consecutive QoQ decline since opening
      • 3.2% hold
      • Rebate rate of 96bps or 30% on a rev share basis
      • The property's historical hold rate since opening has been 2.94%.  If Wynn held at its historical hold rate in 3Q, net revenues and EBITDA would be $49MM and $12MM lower, respectively.
    • Mass win of $208MM, +7% YoY increase
    • Slot win of $54MM, down 15% YoY and 14% QoQ
  • $59MM of net non-gaming revenue
    • Room revenue:  $29MM
    • F&B:  $24MM
    • Retail & other:  $50MM
    • Promotional allowances:  $45MM
  • $516MM of variable expenses
    • $443MM of taxes
    • $65MM of gaming promoter expense assuming a blended commission rate 42.7%
    • Recorded non-gaming expenses of $19MM
  • Fixed expenses of $102MM, flat QoQ and down 3% YoY

 

We’re projecting $379MM of net revenue and $108MM of EBITDA for Wynn Las Vegas (8% above consensus)

  • Net casino revenue of $152MM and operating margin of $67MM
    • Table win of $146MM
      • 10% increase in table drop to $634MM
      • 23% hold rate
    • $40MM of slot win
      • 1% drop in handle to $667MM
      • 6.0% win rate
    • $33MM discounts & rebates or 18% of gross casino win
    • Casino expenses of $73MM, up 3% YoY
  • $273MM of non-gaming revenue
    • Room revenue of $91MM
      • RevPAR:  $206 (ADR: $245/ Occ: 85%)
      • CostPAR:  $85.33
    • F&B:  $123MM revenues at a 41% operating margin
    • Entertainment, retail, & other:  $59MM at a 38% operating margin
    • $46MM of promotional spending or 30% of casino revenue
  • SG&A:  $52MM, up 3% YoY

 

Other assumptions:

  • Corporate expense:  $23MM
  • D&A:  $94MM
  • Stock comp:  $6MM
  • Net interest expense:  $74MM

CHINA IS BORING, AGAIN… WILL THAT BE ENOUGH SAVE GLOBAL GROWTH?

Takeaway: Chinese policymakers have increasing scope to stimulate, but we think they are also increasingly less likely to pursue anything meaningful.

SUMMARY BULLETS:

 

  • Importantly, our lackluster outlook for the Chinese property market over the intermediate term – an outlook largely driven by the collective resolve to avoid a bubble among Chinese officials – keeps a lid on our GROWTH expectations for the Chinese economy as a whole. Specifically, we don’t see China returning to anywhere near double-digit growth anytime soon.
  • Moreover, we continue to aggressively downplay market chatter of a sizeable stimulus package to be implemented over the intermediate term. The latest INFLATION data affords Chinese policymakers additional scope to stimulate, but we continue to see signs of limited desire to do so – especially is the GROWTH data continues to improve like it did in SEP.
  • Interestingly, the street is expecting a v-bottom in Chinese growth starting in 3Q12 and extending through the NTM; going forward, it’s all about navigating expectations that may be too high and potentially heading higher over the next few weeks/months – especially if China’s 3Q12 Real GDP growth beats consensus expectations on Wednesday night (our models suggest this is a likely scenario). We see that shaping up as a positive catalyst in the immediate term and a negative catalyst over the intermediate term as stimulus hopes fade.

 

The note below expands upon a topic we discussed late last week – specifically whether or not the global economy was headed for an outright contraction over the intermediate term. Please refer to the following notes for more details:

 

 

Over the weekend, China reported a handful of key SEP economic data; we use our proprietary GROWTH/INFLATION/POLICY lens to analyze the data for you in the prose and charts below.

 

GROWTH

  • Export growth came in at +9.9% YoY, accelerating from +2.7% YoY in AUG. Shipments to the US and EU accelerated to +5.5% YoY and -10.7% YoY from +3% YoY and -12.7% YoY in AUG, respectively.
  • Import growth accelerated to +2.4% YoY from -2.6% YoY prior; anecdotally, copper imports climbed to a 4MO high and the volume of iron ore imports was the largest since JAN ’11.
  • The Trade Balance widened to $27.6B from $26.6B, pushing up FX Reserves to $3.29 trillion from $3.24 trillion.
  • M2 Money Supply growth accelerated to +14.8% YoY from +13.5% YoY in AUG – good for the fastest pace of growth since JUN ’11.

 

CHINA IS BORING, AGAIN… WILL THAT BE ENOUGH SAVE GLOBAL GROWTH? - 1

 

INFLATION

  • Headline CPI slowed -10bps to +1.9% YoY. Food CPI slowed to +2.5% YoY from +3.4% YoY in AUG. Non-Food CPI accelerated to +1.7% YoY from +1.4% YoY in AUG.
  • Headline PPI slowed to -3.6% YoY from -3.5% YoY in AUG. Manufacturing PPI slowed to -4.2% YoY from -3.9% YoY in AUG.

 

CHINA IS BORING, AGAIN… WILL THAT BE ENOUGH SAVE GLOBAL GROWTH? - 2

 

POLICY

On the heels of the SEP GROWTH and INFLATION data, several key Chinese policymakers were out with some interesting quotes, which, on balance, were largely intended to temper market expectations for meaningful stimulus:

 

  • PBOC Vice Governor Yi Gang: “That the most important job for the central bank is to control inflation… While this year's inflation rate is fine and may be +2.7% for the full year, longer-term threats are from agricultural costs and prices for imported raw materials, commodities and energy, which can be driven by global monetary easing… China's fiscal and monetary stimulus will be appropriate to counter the country's economic slowdown and avoid any negative fallout. The stimulus package, I think, this time will be appropriate in terms of size. When I say appropriate in terms of size, that is large enough to stabilize growth, but not too large to cause some further negative impact, or negative problems in the future."
  • PBOC Governor Zhou Xiaochuan: “Quantitative easing policies worldwide could cause inflationary risks… Central banks should consider draining excessive liquidity injected into the market and eliminate inflationary pressure in the long-term."
  • PBOC Secretary of Discipline Wang Huaqing: “The central bank is putting more emphasis on price-based tools to manage monetary policy and strengthening macro prudential rules to shield the country's financial sector from systemic risk. [The PBOC] was putting greater stress on price-based tools and stepping back from direct control on liquidity.” (i.e. reverse repos)

 

Taken in conjunction with the trend of rhetorical leanings from other bodies of Chinese government (State Council, NDRC and MOHURD), we are inclined to interpret this latest batch of commentary from the Chinese central bank as: “inflation is under control now, but key short-term and long-term risks remain; don’t expect too much from us on the stimulus front”.

 

Recently we’ve been flagging the developing trend of CNY strength (at a ~19YR high) and its divergence from the PBOC’s policy exchange rate (at least until late last week) as a sign that international investors were speculating on the PBOC having to defend the country from the inflationary impact of QE3-inspored commodity speculation, as well as poignant China-bashing on the US presidential campaign trail. Chinese interest rate markets, which have traded quite hawkishly in recent months and are no longer pricing in substantial monetary easing over the NTM, are in confirmation of this view.

 

CHINA IS BORING, AGAIN… WILL THAT BE ENOUGH SAVE GLOBAL GROWTH? - 3

 

CHINA IS BORING, AGAIN… WILL THAT BE ENOUGH SAVE GLOBAL GROWTH? - 4

 

Interestingly, the NDF market continues to anticipate a fair degree of CNY and CNH weakness over the NTM, suggesting intermediate-term GROWTH concerns have not fully dissipated.

 

CHINA IS BORING, AGAIN… WILL THAT BE ENOUGH SAVE GLOBAL GROWTH? - 5

 

KEY CONCLUSIONS

The aforementioned divergence between China’s rates and FX markets makes total sense to us, given the POLICY headwinds still facing China’s property market (Fixed Capital Formation = 46.2% of GDP). To the extent the September PRICE and DEMAND data comes in hot, we could be looking at another round of incremental tightening in this sector over the coming months. For our latest deep dive on China’ property market, refer to our 10/4 note titled, “HOPE VS. REALITY IN THE CHINESE PROPERTY MARKET”.

 

Importantly, our lackluster outlook for the Chinese property market over the intermediate term – an outlook largely driven by the collective resolve to avoid a bubble among Chinese officials – keeps a lid on our GROWTH expectations for the Chinese economy as a whole. Specifically, we don’t see China returning to anywhere near double-digit growth anytime soon. Moreover, we continue to aggressively downplay market chatter of a sizeable stimulus package to be implemented over the intermediate term. The latest INFLATION data affords Chinese policymakers additional scope to stimulate, but we continue to see signs of limited desire to do so – especially is the GROWTH data continues to improve like it did in SEP.

 

It appears Chinese policymakers – the very architects of their current economic slowdown – are content with a growth rate trending in the range of ~7.5%, which is exactly what their current 5YR plan calls for. The days of China consistently beating GDP targets by 200-400bps are likely long gone as Chinese policymakers appear committed to truly transforming their economic growth model.

 

Interestingly, the street is expecting a v-bottom in Chinese growth starting in 3Q12 and extending through the NTM; going forward, it’s all about navigating expectations that may be too high and potentially heading higher over the next few weeks/months – especially if China’s 3Q12 Real GDP growth beats consensus expectations on Wednesday night (our models suggest this is a likely scenario). We see that shaping up as a positive catalyst in the immediate term and a negative catalyst over the intermediate term as stimulus hopes fade.

 

CHINA IS BORING, AGAIN… WILL THAT BE ENOUGH SAVE GLOBAL GROWTH? - 6

 

Darius Dale

Senior Analyst


LVS: EARNINGS SHOULD BE SOLID

We’re above the Street with Singapore being the wild card

 

 

We like the LVS setup.  The underlying fundamentals in Macau are strong.  While October market growth may be only in the mid-single digits, the comparison is the most difficult ever.  November and December should show YoY growth acceleration.  LVS’s market share is building again following a hold depressed September and should normalize over the near-term around 20%.  We expect share could move into the 22-24% range in 2013 which would certainly provide some upside to earnings and sentiment.  While the Singapore market is experiencing growing pains, LVS should continue to gain share.  Importantly, following a disappointing Q2, MBS projections have moderated significantly and look appropriate.  With Macau likely providing the upside, we don’t see Singapore as a drag any more.  Higher earnings, improving sentiment, and an attractive valuation of 12x 2013 EV/EBITDA provides a good entry point.

 

 

Here are our projections:

 

OVERALL

 

Our Q3 revenue and EBITDA projection for LVS is $2.88 billion and $962 million which is in-line and 1% above the Street, respectively.  We’re solidly above the Street for Macau, slightly below for Singapore, and slightly above the Street for Las Vegas.

 


MACAU

 

Our estimate for Macau property-level EBITDA and net revenues is 8% and 3% above the street at $511MM and $1.63BN, respectively.  More specifically, we’re above the Street on Sands and Venetian but below the street for Four Seasons and Sands Cotai Central’s performance.  Venetian played lucky this quarter but the rest of LVS’s portfolio didn’t have the the hottest hand.  On a portfolio basis, we don’t believe that the hold impact was material on EBITDA and based on our math, it could have been even slightly positive.  That said, we’re sure that LVS will say otherwise since we estimate that hold across Sands China’s portfolio was 2.81%.

 

Venetian


Venetian is projected to report net revenue of $770MM and EBITDA of $296MM, 11% and 18% above consensus, respectively.

  • Net gaming revenue of $679MM
    • $254MM of net VIP revenue    
      • RC volume of $10.9BN, down 14% YoY and 3% QoQ
        • Junket RC volume dropped another 2% QoQ on top of a 20% QoQ drop in 2Q, to $7.8BN.  We assume direct play of $3BN, down a bit from $3.2BN in 2Q, but in-line with a direct play rate of 28% (same as 2Q)
        • Hold rate of 3.49%, which is 55bps above the property's historical hold rate.  We estimate that high hold benefited net revenues by $38MM and EBITDA by $21MM.
      • Rebate rate of 115bps or 33% of hold
    • Mass table revenue of $366MM, up 23% YoY
    • Slot win of $58MM
  • $91MM of net non-gaming revenue
    • $53MM of room revenue ($232 ADR/87% Occ/$202 RevPAR)
    • $20MM of F&B revenue
    • $52MM of retail, entertainment and other revenue
    • $34MM of promotional expenses
  • Variable expenses of $355MM
    • $313MM of taxes
    • $22MM of junket expenses assuming a commission rate of 1.36% (rebate + promoter expense )
    • $24MM of recorded non-gaming expense
  • $95MM of fixed costs, up 11% YoY but down from an estimated $96MM last quarter

 

Sands Macau


We expect Sands to report net revenue of $312MM and EBITDA of $89MM, 6% and 14% above the Street, respectively.

  • Net gaming revenue of $306MM
    • $122MM of net VIP revenue    
      • RC volume of $6.9BN (down 13% YoY) assuming 9% direct play and a hold rate of 2.81%
      • Rebate rate of 104bps or 37% of hold
      • Assuming historical hold of 2.94%, net revenues and EBITDA would have been $15MM and $9MM higher, respectively
    • Mass table revenue of $159MM, up 10% YoY
    • Slot win of $24MM
  • $6MM of net non-gaming revenue
  • $172MM of variable expenses
    • $147MM of taxes
    • $16MM of junket expenses assuming a commission rate of 1.19% (rebate + promoter expense ) or 33%
    • $4MM of recorded non-gaming expense
  • $47MM of fixed costs, down 21% YoY and 1% QoQ

 

Four Seasons

 

We estimate $230MM of net revenue and $66MM of EBITDA, 12% and 8% below the Street, respectively.    

  • Net gaming revenue of $201MM
    • $154MM of net VIP revenue    
      • RC volume of $9.0BN, up 116% YoY but down 2% QoQ on top of a 28% sequential decrease in 2Q
        • Junket RC volume is down 29% since the opening of SCC QoQ to $7.6BN, no doubt as a result of some of the junkets moving over to SCC.  We assume that direct play is close to the $1.4BN; close to last Q’s number or 16% of total RC.
      • Hold of 2.55%, 19bps below the historical hold at FS
      • Rebate rate of 84bps or 33% of hold
      • Using historical hold rate, we estimate that net revenue and EBITDA would be $11MM and $4MM higher, respectively.
    • Mass table revenue of $36MM, down 14% YoY- the property's first YoY decrease in Mass revenues
    • Slot win of $11MM
  • $29MM of net non-gaming revenue
    • $10MM of room revenue
    • $6MM of F&B
    • $23MM of retail, entertainment and other
    • Promotional expenses of $9MM
  • $138MM of variable expenses
    • $108MM of taxes
    • $24MM of junket expenses assuming a commission rate of 1.11% (rebate + promoter expense )
    • $8MM of recorded non-gaming expense
  • $17MM of fixed costs, down 9% YoY and flat QoQ

 

Sands Cotai Central

 

We estimate $319MM of net revenue and $60MM of EBITDA, 5% and 16% below of the Street, respectively.    

  • Net gaming revenue of $289MM
    • $285MM of net VIP revenue    
      • RC volume of $9.3BN
        • Junket RC volume of $8.3BN.  We assume direct play of 11%, that implies a hold rate of just 2.28%. Direct play in 2Q was approximately 12%.
      • Rebate rate of 79bps
      • Assuming theoretical hold of 2.85%, net revenue and EBITDA would be $32MM and $11MM higher, respectively.
    • Mass table revenue of $118MM
    • Slot win of $32MM
  • $30MM of net non-gaming revenue
    • $24MM of room revenue
    • $14MM of F&B
    • $8MM of retail, entertainment and other
    • Promotional expenses of $15MM
  • $170MM of variable expenses
    • $141MM of taxes
    • $22MM of junket expenses assuming a commission rate of 1.02% (rebate + promoter expense )
    • $13MM of recorded non-gaming expense
  • $77MM of fixed costs

 

SINGAPORE


We project $782MM of net revenue and EBITDA of $414MM, 5% and 1% below consensus, respectively.

  • Net gaming revenue of $641MM
    • $218MM of net VIP revenue    
      • RC volume of $13.4BN, down 20% YoY
      • Hold rate of 2.88%
      • Rebate rate of 1.25%
    • Mass table revenue of $278MM
      • Drop of $1.2BN, up 3% YoY and 22.5% hold
    • $145MM of slot & EGT win
  • $141MM of net non-gaming revenue
    • $84MM of room revenue ($360 ADR/99% Occ/$356 RevPAR)
  • $78MM of gaming taxes and $42MM of GST
  • $240MM of fixed costs, compared to an estimated $228MM in 2Q and $240MM in 1Q

 

LAS VEGAS

 

We estimate that Venetian and Palazzo’s net revenues will be $359MM with EBITDA of $93MM, which are 2% and 4% above Street estimates, respectively.

  • Net casino revenue of $130MM
    • Table revenue of $113MM
      • Drop of $563MM, up 5% YoY
        • 20% hold
    • $42MM of slot win
      • $490MM of slot handle, flat YoY and 8.6% hold
    • Rebates of $24MM or 4.5% of GGR
  • $116MM of room revenue - $181 RevPAR (+2% YoY)
  • $138MM of F&B, retail & other revenue
  • $25MM of promotional allowances or 16% of GGR
  • 5% YoY increase in operating expenses to $255MM and consistent with run-rate in 1H12 

 

BETHLEHEM  

 

We expect Sands Bethlehem to report $120MM of revenue and $29MM of EBITDA, 6% above consensus on both metrics.

  • $109MM of gaming revenues
    • Table revenue of $36MM
    • $73MM of slot win
  • $11MM of net non-gaming revenue
  • $46MM of taxes
  • $45MM of operating expenses

 

OTHER

  • D&A: $230MM
  • Rental expense: $11MM
  • Corp and stock comp expense: $67MM
  • Net interest expense: $59MM

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