Galaxy delivered another beat on in-line revenues driven by surprisingly strong margins at their flagship property. We are finally seeing the benefit of mix-shift? 




Looking ahead, GEG remains very confident in the growth prospects for the industry and Macau as a whole as major infrastructure projects come on stream which improve access to Macau.



  • Increase in margins at Galaxy Macau is attributable to a shifting mix towards more mass business which carries a higher margin
  • QoQ decrease in VIP turnover at GEG was due to the economic slowdown and moderation of activity before the government changeover
  • GM Ph2 has 900 workers on site currently and is on schedule to complete pilings at the end of this year
  • Acknowledge that VIP has paused but still remains very healthy.  The pause is natural given the changeover in government and economic conditions.



  • They are very focused on segment specific marketing and hotel yield management.  Yield their 2 properties as a portfolio rather than individual properties.
  • Average length of stay at GM is 2 days - one of the highest in Macau.  More than half of their hotel guests are gaming customers vs. FIT. As they increase length of stay that has a huge benefit for their business since they capture more play.
  • Pavilion high limit slot lounge is doing very well at GM
  • How much room for margin improvement is there at GM?
    • Primary factor of the improvement was the shift towards more Mass revenue.  Still think that there is upside in margins as they manage costs and yield their product
  • Hold rate on Mass? 
    • High 20s is normal given their premium mass focus. Thinks that high 20s/ low 30s are normal for their business mix.
  • GM:  modest hold adjusted HK$35MM benefit - held very high in premium mass last quarter which had a benefit of HK$100MM in 2Q (total - not just from premium mass)
  • Uses of cash? Spending on GM Ph2 will ramp up next year.  That's not to say that at some point in the future they won't consider a dividend.  Think that the highest and best use of cash given their ROI is reinvesting in their property. 
  • Thoughts on Phase 3 plans? They are very excited for Ph3 but right not they are focused on developing PH2.
  • Haven't seen any slowing collections from their partners.  Their partners are very healthy. They do believe that the VIP market will start growing again just at a slower pace then in the past. The VIP market just feels better now.
  • Spent about HK$600-700MM on capex, most of which was on PH2.
  • How do they feel about getting enough labor post all the other project approvals? They are confident that they will get the labor they need.
  • Galaxy Macau: Still have about HK$2BN unpaid capex balance
  • Their receivables balance in 3Q is very stable
  • VIP at GM used to be in the high 60s on revenue contribution and now it's in the low 60s
  • Smoking Ban:  Meeting with the government to understand how to meet the new standards. They are confident that there will be minimal impact on their business. 



  • "The Macau gaming market continues to evolve with VIP gaming revenues moderating from
    historic highs and higher margin Mass revenues growing as a proportion of total gaming
  • GEG Adjusted EBITDA of HK$2.6BN, up 46% YoY and revenue of HK$14BN
  • Galaxy Macau: Adjusted EBITDA of HK$1.8BN, reflecting an increase in Mass revenue
    • Adjusted EBITDA margin of 21% and 29% under US GAAP
    • Revenue of HK$8.3BN
    • Annualized ROI of 42%
    • Hotel occupancy of 97%
    • VIP turnover: HK$173.3BN; 3.3% hold
    • Mass drop: HK$6.3BN; hold of 29.9%
    • Slot revenue: HK$5.3BN; hold of 5.8%
    • Non-gaming revenue of HK$391MM
  • Starworld: Adjusted EBITDA of HK$843MM
    • Mass revenue grew 43% YoY
    • Annualized ROI of 99%
    • Implementing new growth initiatives with target completion of Q213
    • Occupancy of 99%
    • VIP turnover: HK$147.1BN; 3.0% hold
    • Mass drop: HK$2.6BN; hold of 23.1%
    • Slot revenue: HK$882MM; hold of 6.7%
  • City Clubs Adjusted EBITDA of HK$39MM
  • Construction materials Adjusted EBITDA of HK$113MM
  • Cash: HK$12.6BN (including HK$2BN restricted cash) & net cash position HK$1.5BN
  • Galaxy Macay Ph2: on schedule for mid-2015 opening


Management seemed a little more upbeat about Macau, and Las Vegas had a surprisingly strong quarter in terms of volumes and revenues.




  • Had a good performance in Las Vegas this quarter.  Volumes are satisfactory, improving ever so slightly. They have enjoyed the advantages of being a niche operator so their room revenues are better.
  • In Macau, they are basically flat YoY YTD.  Considering all the new capacity being added this year, Steve is heartened by that.  Feel the strain of competition on the high limit slots. They will be improving their high limit slot room shortly. The level of competition in Macau is terrific. 
  • Confident that Wynn Macau will continue to garner more than their fair share of the business. 
  • If business continues to ramp up and improve, then, as economic conditions allow, they will increase their regular dividend.  It will also allow them to become attractive to yield focused investors 



  • Collections in Macau?  Credit has tightened in the market place so they have been more prudent than in the past so their collection rates have not been impacted
  • Plenty of cash in the US today to fund their dividends.  Their board will meet to discuss Wynn Macau's dividend.
  • Cash in Macau: $1.4BN post dividend (Wynn Macau), $500MM post dividend (Wynn LV) 
  • Going forward their dividend policy will be conservative to allow them to provide for their employees and money for projects, so long as the government policy remains favorable to dividends
  • Had some junket space, F&B, and retail out of service this quarter.  Have a brand new junket space (taken back from International group) opening on November 1st. Should see some improvement in 4Q and 1Q13. 
  • Lost some of their high limit slot business - not the very high end but the meaty part - should open a new room to compete better by CNY.
  • They give away as much in promotional allowances as they can afford to.  Would rather lose some top line than lose bottom line. So Steve doesn't know if their share in Macau has stabilized. 
  • They are worried about the labor issues but not so much about the other projects but also all the infrastructure projects that are ongoing.  The other project announcements do not impact their project thinking at all.  Government is taking a more relaxed outlook on labor importing as well. Currently, they have enough labor for foundation. Don't see any issues over the next 12 months.  Beyond that, it depends on all the other projects under construction, not just gaming.
  • Any change in the decelerating VIP trends in Macau?  Things have stabilized in Macau and credit has loosened. 
  • They build a rendering of the Cotai project in Macau in real scale, which you can see if you go over there. Should be finished before Christmas.
  • Finished drainage work by November. Think that they can start pilings after that.
  • 60% of the project cost is already financed. Most (75%) of the spending will take place between mid 2014 through 2016.   Want to open by CNY 2016. Doesn't think that they will have a labor problem constructing it. 
  • How are WYNN's small business customers in the US and China feeling? Hopes that the uncertainty in the US will be resolved during the elections which will occur in the next few weeks. In China, there are some feelings that more businesses need to be privatized and liberalized (i.e. decentralization) in response to the country's rapid expansion. 
  • Does not think that the VIP market is tapped in Macau
  • 2,000 SQFT- getting paid $6MM/year for a retail location in Wynn Macau
  • Their goal in Cotai is to be everyone's first choice
  • In Macau - they had pretty much the same hold in direct and junket play
  • In Macau they had some retail space under construction and the rest of subpar performance was just less super high-end watch sales
  • Everyone got nervous during the summer and there was some tightening of credit; since then, things have loosened.  Things really feel better today then a few months ago
  • Generally speaking, they think that the market is terrific in Macau



  • Net revenues were $1,298.5 million and Adjusted property EBITDA was $402.6 million 
  • "Wynn Resorts also announced today that the Company has approved an $8.00 cash dividend, which includes the $0.50 per common share quarterly dividend. This dividend will be payable on November 20, 2012, to stockholders of record on November 7, 2012 and the stock will begin to trade ex-dividend on November 5, 2012. Additionally, the Company plans on increasing its quarterly dividend to $1.00 per share in 2013."
  • Macau: Net revenue of $910.5MM and Adjusted EBITDA of $292MM
    • "Gross non-casino revenues decreased 5.3% during the quarter to $97.2 million, primarily due to an 8.5% decline in retail revenues resulting from lower sales in some of our watch stores."
  • Wynn Cotai: "The Company currently estimates the project budget to be in the range of $3.5 billion to $4.0 billion. The Company expects to establish a guaranteed maximum price for the project construction costs in the first half of 2013."
  • Las Vegas: Net revenue of $388MM and adjusted EBITDA of $110.4MM
    • Gross non-casino revenues increased 5.3% YoY "due to increases in hotel and food and beverage revenues, which were partially offset by lower retail and entertainment revenues."
  • Cash and investments: $2.7BN
  • Total debt: $5.8BN ($3.1BN at Wynn Las Vegas, $749MM at WYNN Macau and $1.9BN at the parent)
  • "On July 31, 2012, Wynn Macau amended and restated its credit facilities and increased the availability under its bank facility to approximately $2.3 billion, consisting of an approximately $750 million term loan facility and an approximately $1.55 billion revolving credit facility." 
  • "On September 17, 2012, Wynn Las Vegas terminated its credit agreement."
  • "In connection with amending the Wynn Macau credit facilities and the termination of the Wynn Las Vegas credit agreement, we expensed $19.7 million of deferred financing costs and third party fees"
  • In 3Q12, WYNN "spent approximately $24.0 million on our Cotai Project."


Takeaway: Solid quarter and positive forward commentary about Macau.

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




  • SLIGHTLY BETTER:  Management seemed a little more upbeat about Macau, and Las Vegas had a surprisingly strong quarter in terms of volumes and revenues.


  • BETTER: The special dividend of $8/share is a nice surprise given that some analysts were expecting it post-election.  Also, WYNN will increase its regular quarterly dividend from $0.50/share to $1.00/share starting in 2013.
  • PREVIOUSLY: [Update on special dividend, annual dividend or share buybacks?] "I can't resolve that question in absolute terms. I can tell you that that is the order of business before the Board when we get together and it comes up at this time. The Board was naturally waiting to see how the financing would go."


  • SAME:  WYNN has given out as much promotional allowances as they can.  WYNN will not risk the bottom line.  
    • "We have been able to hold the percentage we pay the junket operators to 40% plus 3% or so for complementaries, and our competitors are about 5 points ahead of us in terms of what they give the junket operators."
    • "The price war has extended into the mass end of slot markets....we always focus on how much junket commission that's given out, but we are actually giving out a lot more incentives now in slots and mass market to also buy back business."


  • BETTER:  Continued its prudent philosophy.  As a result, collections haven't suffered. The feeling is things have stabilized.  Junkets are giving more credit recently.
  • PREVIOUSLY:  "We are very conservative about credit....we don't use a rolling's 15 day credit on the 15th of the month."


  • SAME:  75% of the Capex will be spent in mid-2014 to mid-2016.  WYNN Cotai is aiming for a Chinese New Year opening in 2016. 
  • PREVIOUSLY:  "~$150 million on foundations over the next nine months to 12 months."


  • SLIGHTLY BETTER:  Opex came in around $1.2 million a day in 3Q.  This is a pretty steady run rate.
  • PREVIOUSLY:  "We're running between $1.3 million and $1.4 million per day before we take into account commissions or bad debt or anything like that. I expect that to continue. But, there will be continuous cost pressures, primarily driven through the pressures on payroll."


  • SAME:  New junket room will open at the 1st week in November; one of the major Chinese operators will move in.
  • PREVIOUSLY:  "We built a new junket room that's going to be open for Christmas. Another retail space -  a small one for jewelry at the entrance of the casino."

Early Look

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Trade Of The Day: EAT

Today we bought Brinker International (EAT) at $30.00 a share at 12:57 PM EDT in our Real Time Alerts. Hedgeye Restaurants Sector Head Howard Penney is saying that the conference call confusion is why the stock is getting hammered, so Keith bought it in the Real Time Alerts on red. Pretty straightforward as the EAT hold's its long-term TAIL line of 29.11 support. 


From our Alpha Sheet:


"Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x."


Trade Of The Day: EAT - EAT




Bearish TREND: S&P 500 Levels Refreshed

The stock market is not the economy. Growth and #EarningsSlowing has not changed; the markets re-rating of those economic risks have.


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


1.       Immediate-term TRADE resistance = 1426

2.       Intermediate-term TREND resistance = 1419

3.       Immediate-term TRADE support = 1404


In other words, the market is now bearish TREND. What was support is now resistance. If TREND resistance remains, long-term TAIL support of 1354 is in play.


Risk moves fast,



Bearish TREND: S&P 500 Levels Refreshed - KMchart1

German Data Misses!

Takeaway: Germany may be leading the political cart in the Eurozone, however its economy is not immune to the region’s downturn.

Positions in Europe: Long German Bunds (BUNL)

Today we received German PMI data and German IFO confidence figures – both missed!  Our quantitative levels also show that the German DAX recently broke through its immediate term TRADE support level, which is a bearish indication.


From the Preliminary October figures for PMI Manufacturing and Services for the largest economies of the Eurozone, including the regional aggregate, it’s noteworthy that Germany’s PMIs fell month-over-month and missed versus expectations to remain under the 50 line indicating contraction (see chart directly below).


German Data Misses! - aa. PMI


While we’ve identified the German economy as the strongest versus its peers for many months, it is certainly not immune to the economic slowdown facing the entire region. The slide in PMIs (which began in January 2012) is therefore not a huge surprise.  Nor is the lack of confidence as measured by consumer and business surveys. 


Today IFO reported its German Business Confidence survey and Current and Forward-Looking Economic surveys.  All slid month-over-month, marking a move down since April 2012.  


German Data Misses! - aa. IFO


While the Eurozone’s political positioning on its debt, deficit and banking issues evolves on a daily if not hourly basis, we’re of the position that Germany wants to play ball in maintaining the fabric of the current Eurozone members.


Out of self interest, the Germans may not be the first to show their political cards simply because as the fiscally and economically strongest nation, it’s not to their advantage to sign off on paying for the entire region’s bills until it gets some support from other member nations. While this tactic could be view as delaying the process and leading to much of the inaction in policy over the last months and years, there’s plenty of evidence to suggest Germany’s support for the region, including most recently that Germany’s Finance Ministry is considering a debt buyback as a way to help reduce Greece’ debt burden.


News today also appears to suggest that Troika will give Greece a two year extension to meet its fiscal consolidation target and will receive its next 31.5B tranche of bailout funding. While we don’t think this will be the last concession/compromise concerning Greece or other peripherals from Troika, implicit in the Troika’s decision making is a sign-off from Merkel too.


So it’s under a scenario of a concerted commitment from Merkel and Draghi to save and/or maintain stability in the region versus the reality of an extended period of weak underlying fundamentals that would allow for mispricing across asset classes as the development of an evolving Eurozone are misunderstood. And to repeat, we believe that a fiscal union is a huge step for the region, one we think will be challenging to form given the inability of countries to give up their fiscal sovereignty to Brussels—so clearly there’s much runway for investors to manage around.


Our Real-Time Position in BUNL on the long side has worked against us as the last weeks have seen peripheral yields come in and push core yields higher. We are however, worried about the German equities given that the DAX just broke its immediate term TRADE line of 7,331.


German Data Misses! - aa. DAX


For now we have no other current Real-Time position in Europe besides BUNL.


Matthew Hedrick

Senior Analyst

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