MPEL should report Q3 EBITDA above the Street 



We are projecting that MPEL will report $988 million of net revenue and $217 million of EBITDA, in-line and 2% ahead of consensus, respectively.  On a hold adjusted basis, our EBITDA estimate goes to $210 million, assuming 2.85% hold, and $211 million if we use the historical averages of Altira and City of Dreams.  This compares to the Street at $213 million which should be an estimate of absolute EBITDA.  Note that consensus EBITDA has climbed from $204 million in the past two weeks to $213MM, due in part to the slightly higher hold percentage. 



3Q Detail


We estimate that City of Dreams will report $740MM of net revenues and $198MM in EBITDA (2% above consensus)

  • Our net casino win projection is $720MM
    • VIP net win of $438MM
      • Assuming 15% direct play, we estimate $19.5BN of RC volume (down 4% YoY) and a hold rate of 3.14%
      • Using CoD’s historical hold rate of 2.91%, EBITDA would be $12MM lower and net revenues would be $43MM lower
    • $245MM of mass win, up 31% YoY
    • $38MM of slot win
  • $20MM of net non-gaming revenue
    • $22MM of room revenue
    • $13MM of F&B revenue
    • $21MM of retail, entertainment and other revenue
    • $37MMM of promotional allowances or 65% of gross non-gaming revenue or 5.1% of net gaming revenue
  • $429MM of variable operating expenses
    • $349MM of taxes
    • $67MM of gaming promoter commissions in addition to the rebate rate of 90bps (we assume an all-in commission rate of 1.24%)
  • $25MM of non-gaming expenses
  • $87MM of fixed operating expenses up 6% YoY and down $2MM QoQ

We project $215MM of net revenues and $31MM in EBITDA for Altira (1% above consensus)

  • We estimate net casino win $209MM
    • VIP net win of $281MM
      • $10.9BN of RC volume (17% YoY decrease) and a hold rate of 2.63%
      • Using Altira’s historical hold rate of 2.80%, we estimate that EBITDA would be $6MM higher and that net revenues would be $19MM better
    • $27MM of mass win, up 15% YoY
  • $3MM of net non gaming revenue
  • $153MM of variable operating expenses
    • $123MM of taxes
    • $27MM of gaming promoter commissions in addition to the rebate rate of 94bps (we assume an all-in commission rate of 1.19%
  • $3MM of non-gaming expenses
  • $28MM of fixed operating expenses in line with 1Q

Other stuff:

  • Mocha slots revenue and EBITDA of $34MM and $8MM, respectively
  • D&A: $95MM (guidance of $90-95MM)
  • Interest expense: $25MM (guidance of $23-25MM)
  • Corporate expense: $20MM (guidance of $18-20MM)


All signs point to a down YoY quarter in Singapore GGR


  • Gross Lettings (paid and comped room nights) in Singapore were down almost 5% YoY QTD through August.  As shown in the chart, GL and GGR track each other closely.
  • We’re pretty sure Genting Singapore played unlucky in Q3 and probably lost volume share to LVS’s Marina Bay Sands (MBS)
  • Our Q3 MBS estimate is for flat EBITDA.  While there could be some downside, we believe any significant deviance from that number is likely due to low hold.



Takeaway: To be, or not to be, priced in – remains the question.

POSITIONS: Short Industrials (XLI)


To be, or not to be, priced in – remains the question.


I don’t think the economy (#GrowthSlowing in Q1/Q2 or #EarningsSlowing here in Q3/Q4) has been priced into the stock market all year. But that’s just me. Some people think the Fed has had nothing to do with the stock market not being the economy. Right.


Finally, the storytelling is hitting a fork in the road. The economy is colliding with both sectors and stocks (one at a time), and now we’re hearing the pundits who missed calling growth and earnings slowing to begin with say “it’s priced in.” Right, right.


Across our core risk management durations, here are the lines that matter to me most:


  1. Immediate-term TRADE resistance = 1442
  2. Intermediate-term TREND support = 1419


In other words, if and when fundamentals matter (they did Friday), there’s no reason why we shouldn’t test my 1419 line. Will that be this week, next, or in November? I don’t know. But the probability of that occurring is rising, not falling.


While some may forget the corporate margin cycle topping in Q3 of 2007, few will forget the SP500 was down -4.4% in November of 2007.  When the stock market was up “double digits YTD” in October 2007, a few things apparently weren’t priced in.


Keep your head on a swivel out there. Risk happens fast.




Keith R. McCullough
Chief Executive Officer



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COH: Valuation is Not a Catalyst

Takeaway: When the research tells us to stand our ground, that’s exactly what we’ll do. Valuation is not a catalyst. We're short COH into the print.


Keith asked me today if I’d stay short COH into the print. His quant models say that the answer is to short more here, and fundamentally, I can’t say that I disagree as the primary reasons we’re short it are still in-tact.

Specifically, and simply, revenue is decelerating while the cost of growth is rising. This should be fairly evident in Coach’s numbers for another 2-3 quarters at a minimum. Growth is dependent on the Legacy launch, as well as Men and to a lesser degree, China. At the same time, SG&A costs are rising in advance of the launch (which may or may not work), and Gross Margins are at risk as the financial triangulation of Sales Inventories and Margins rests in a tenuous point of our SIGMA analysis.

We concur that the stock looks cheap on next year’s numbers, but a) valuation is not a catalyst, and b) we’re 5% below the consensus this year (fiscal 6/13), and 9% below for the following year. We also hear the argument that sentiment is already bad, but we’re not so sure. In fact, we’re looking at about 4% of the float short, while historical peaks have been double that. Interestingly enough, higher short interest has not proven to be a deterrant from making money here on the short side. Check out the chart below to track the historical trend. Lastly, the stock has been acting poorly over the past few days, but note that it’s still $2 above the closing price on the day the company last released – and we have no reason to believe that things have improved materially.

The biggest caveat is that they’re likely to start with their new reporting structure with this print. There will be confusion on the release. People will be slow to react, and any positive spin by the company will be tough to contextualize. But if they stop reporting comps, or other important info, at a time when sales growth WILL slow and costs WILL rise, it can’t be good.


It’s always easy to get spooked headed into a print with any position – long or short. But when the research tells us to stand our ground, that’s exactly what we’ll do. Again, valuation is not a catalyst.

Coach’s SIGMA Positioning is Not Good

COH: Valuation is Not a Catalyst - COH S


Short Interest Is Nothing To Be Afraid of Here

COH: Valuation is Not a Catalyst - COH SI

CAT: The Slowing Continues

It’s worth noting that with Caterpillar (CAT) management offering lower guidance for 2013 recently, the stock has dropped -28% since late February when we first initiated our #EarningsSlowing call. Look around the market and you’ll see a lot of other companies that look like CAT. The slowdown in earnings across all sectors is one of our big macro themes and it’s certainly more relevant than ever at this point.


CAT: The Slowing Continues  - CAT


Strong recent stock performance and a still risky near-term environment, as evidenced by our recent pricing survey, leaves us on the sideline.



Despite a 6.5% increase in bunker fuel prices since their guidance on July 20, RCL should report in-line 3Q results Thursday due to better cost management.  RCL has had six straight quarters of better than expected expenses ex fuel, and that streak should continue.  2012  guidance should be intact but F4Q may be lowered slightly due to continued pricing weakness in North America (i.e. Caribbean) and higher fuel prices.  But investors may not care much about this fiscal year as all ears will be on Fiscal 2013 commentary.  Bookings continue to be solid and will likely improve in 2013.  F1Q 2013 is a difficult comp as yields were up 7% last year with much of the business booked before the Costa Concordia incident.  We’re seeing slightly higher Caribbean pricing YoY for 1H 2013, though it is losing steam recently.  69% and 37% of capacity is in the Caribbean for 1Q 2013 and 2Q 2013, respectively.  Meanwhile, the recovery in European pricing has been steady.     


Here are some other conclusions from our cruise pricing survey completed last week.  The charts below track pricing trends on a relative basis—i.e. prices relative to that seen on the last earnings call (RCL - July 20).


F4Q 2012

  • Discounting on some last minute booking remains in the Caribbean.  Celebrity pricing remains robust but the trend is slacking.
  • Asia-Australia pricing continues to outperform as pricing trends have improved during the last two months

F1Q 2013

  • Caribbean:  pricing is flattish for RCL branded ships while modestly higher for Celebrity brands.  Trend-wise, RCL brands slipped in prices from September to October while Celebrity brands improved slightly. 

F2Q 2013

  • European pricing continues to move higher across all brands
  • Pricing in the Caribbean is flattish and the trend is worsening
  • Alaska pricing hasn’t fluctuated much

Trading at more than 13x forward earnings, valuation is roughly in-line with its 20-year average.  2012 provided a difficult operating environment because of the European recession, increases in bunker prices, and costly incidents on the water.  We believe 2013 could be another tricky year with difficult comps early in the year and the resiliency of the North America market will be tested again particularly with low GDP growth.  The jury is still out on how RCL will handle the higher capacity in the Carribean in 2013.  Europe may recover but the question is how much and how fast.  While we are optimistic on RCL in the long-term on favorable demographics, low market capacity growth, and continued improvements on the cost side, we think it’s better to stay on the sidelines given the near-term risks and fair valuation.


RCL: EYES ON 2013 - RCL888


RCL: EYES ON 2013 - RCL1


RCL: EYES ON 2013 - RCL2


RCL: EYES ON 2013 - RCL3


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