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LVS 3Q CONF CALL NOTES

Takeaway: Still the best story in gaming

Singapore as advertised by the shorts but Macau strong and getting stronger. Dividend raise a plus.

 

 

CONF CALL NOTES

  • Organic growth at existing properties: 3Q Macau market share 19.3%
  • Oct Macau Market share: >20%
  • 17% market share of RC volume for 3Q
  • Macau table productivity: win/mass/table increased 26% to $8.700 vs $6,900 (LVS is the market leader)
  • MBS: cost $105MM in EBITDA due to low hold; main customers: Singapore, Indonesia, Malaysia, HK, Taiwan, China, Japan, Korea, and Vietnam
  • SCC:  sees strong operating performance continuing in the quarters ahead as phase II ramps up; Holiday Inn, Conrad, and Sheraton are doing well.  Connecting bridge will open in December.
  • Parisian target opening: late 2015 or earlier
  • Are actively pursuing Japan, Korea and Vietnam.  Taiwan is taking more time.
  • Madrid: will only have projects that return above 20%
  • Parisan Macau: waiting for govt approval
  • Japan:  gaming legislation supposed to be submitted to the Diet in April 2013
  • Korea:  have met with local govt officials; have not negotiated tax rates; expect a 'Singaporean-type' of restriction on local play
  • Vietnam:  long process in Ho Chi Minh City 
  • Taiwan:  interested in the Mainland but process has been slow
  • Toronto:  have decided on location; needs the approval of Toronto City Council
  • South America (Brazil, Argentina), NYC (Queens):  have looked at opportunities there
  • Singapore:  VIP and mass volumes have been volatile in the last four quarters; hotel and MICE business have performed very well; there is rarely an empty room.  Retail has done well.
  • Las Vegas:  held very well; continues to be driven by Asian customers; had some group cancellations in 3Q but 2013 outlook looks stronger.
  • Sands Bethlehem:  Hotel was sold out for the last 4 days
  • Hold-adjusted EPS was 53 cents
  • Only $100mm debt due in remaining 2012 and 2013; interest at 2.9%
  • Net debt/EBITDA: 1.9x
  • Comfortable with net leverage ratio of 3-3.5x if international opportunities present itself

 

Q&A

  • Macau SSS growth rate:  should accelerate in the future.  
  • Mass/ETG/slots:  getting more share by the quarter
  • Singapore:  flat in the VIP segment in the last 4 quarters; VIP growth is a challenge; Mass/ETG also challenging. Will be targeting $10-20K premium mass customer into MBS---believes that segment is the growth for the future
  • SCC:  January is the date for additional tables
  • S'pore RC volume:  customer demand was soft, has been in the $11-12 billion range recently. Goal is to go back to $15-16 billion range. 
  • Singapore looks like a $45-50 billion rolling market
  • VIP market in China is slowing...same deceleration in Singapore.
  • 24 new stores opening in Four Seasons, opening 43 new stores in SCC; a mall will open next to Sheraton
  • SCC:  very happy with the junkets there; mass tables have been slow due to strong performance from Venetian. Goal is $10k win/mass table/day--what Venetian did in 3Q
  • SCC margins were hurt due to lack of premium mass
  • 3Q Direct Play at Four Seasons: 16% vs 37%
  • Lot 3:  govt has said they will give more tables to people who build more non-gaming--they want 10% casino, 90% non-gaming property composition.  LVS is confident they will get 500 tables but may get 450.
  • SCC:  reallocating space for premium mass
  • Europe:  gaming tax will be relatively low
  • NYC market:  Willets Point in Queen 
  • Macau: premium mass vs regular mass margins-- 40s, not much difference between tiers
  • Singapore: premium mass vs regular mass margins--high 60s, also not much difference between tiers

 

HIGHLIGHTS FROM THE RELEASE

 

  • Raised quarterly dividend by 40% to $0.35 per common share, or $1.40 per common share per year, beginning in 1Q 2013
  • Hold-adjusted EBITDA: $950.7 million
  • Consolidated adjusted property margin of 32.4% vs 38.4 in 3Q 2011
    • Due to lower hold (approximately $74 million adjusted property EBITDA impact) and increased provisions for accounts receivable (approximately $15 million in adjusted property EBITDA impact) in Singapore.
  • Sands China:  property EBITDA increased 24.3% to $485.6 million 
  •  MBS
    • Adjusted EBITDA $260.8 million; hold-adjusted EBITDA: $365.6 million
    • Rolling chip hold: 1.79%
    • Rolling chip volume dropped 30% YoY
    • Non-Rolling Chip drop decreased 5.7% to $1.13 billion
  • Las Vegas: adjusted property EBITDA of $98.2 million, an increase of 4.1% compared to the $94.3 million in 3Q 2011
    • Higher than expected table games win percentage of 28.1% for the quarter. Table games drop, which benefited from strong growth in baccarat play, increased 8.5% to a third quarter record of $581.5 million. Slot handle increased 1.7% to $498.4 million while slot hold percentage was 8.7%. Hotel ADR was flat compared to last year's quarter, although RevPAR decreased 5.6% due to a lower occupancy percentage.
  • D&A: $226.5 million
  • Net interest expense: $62.3 million
  • Unrestricted cash balances as of 3Q: $3.75 billion
  • Total debt outstanding, including the current portion, was $9.50 billion. Total principal payments for the remainder of 2012 and the full year 2013 are approximately $8.7 million and $97.5 million, respectively.
  • 3Q capex:  $327.3 million, including construction and development activities of $231.8 million in Macao, $79.8 million in Las Vegas, $10.9 million at Marina Bay Sands, and $4.8 million at Sands Bethlehem. 

Footwear, Nike UA winning. Apparel, TBL Losing.

Takeaway: Athletic FW is steadily growing while apparel is weak. $NKE is the steadiest of the bunch. UA looked great. Timberland/$VFC looks poor.

Athletic footwear continues strong last week, though we wish we could say the same about apparel. Keep in mind that neither of these datapoints was impacted by the storm. In fact, if anything we could argue that we should has seen some shopping (largely apparel) the days leading up to the storm. Nothing to be alarmed about, but we don't want to see this carry into next week. 

 

As it relates to Brands, Nike was 'steady as she goes' with a  high-teens growth rate in sell through. But the big surprise was UnderArmour, with 40%+ top line growth. That's about as good as we've seen from UA since it launched Spine.  One of the more troubling performances is Timberland, which has gotten sequentially worse over the past three weeks. One datapoint means little to us - three means a heck of a lot more. We'll look into it and be back to you. But keep this mind as it relates to what we think is an overextended VFC. 

 

Footwear, Nike UA winning. Apparel, TBL Losing. - 11 1 2012 5 49 28 PM


TRADE ALERT: WMT???

Takeaway: Buying an oversold WMT at $73 is better than chasing it at $77. Everything has a time and price. We’re going to keep a tight leash here.

Going long WMT here after a 30% 12-month run is one of the sleepier TRADE’s we’ve put on recently in retail. That’s especially the case when you take into account that all of the earnings upside in our model is coming from lower SG&A vs last year and lower share count. Hardly something to get super excited about. The historically low short interest coupled with the historically low Buy rating percentage probably cancel each other out. But how can we ignore that management has hardly sold a share since a 22% run stated off in March?

 

Per Keith… “Buying WMT at $73 at immediate-term TRADE oversold is better than chasing it at $77. Everything has a time and price. We’re going to keep a tight leash on this one.”

 

TRADE ALERT: WMT??? - WMT TTT

 

Short Interest Might Be Low, But The Sell-Side Does Not Like This Thing

TRADE ALERT: WMT??? - 11 1 2012 4 55 41 PM

 

Management Not Selling Despite The Run

TRADE ALERT: WMT??? - wmt3


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Express & Courier Services Black Book Invitation

Takeaway: Hedgeye Industrials will present an Express & Courier Services Black Book NOV 8 @ 1:30PM, including $FDX, $UPS, DPW GY, TNT, $EXPD, & others

HEDGEYE INDUSTRIALS:


Express & Courier Services Black Book 

THURSDAY, NOVEMBER 8th 2012, 1:30pm EST  

 

Express & Courier Services Black Book Invitation - ups

 

 

Major Tickers: UPS, FDX, EXPD, DPW GY (Deutsche Post/DHL), TNTE NA (TNT Express)    

 

 

The Express & Courier Industrials sub-industry currently offers interesting investment and trading opportunities. Hedgeye's Industrials Team, led by Jay Van Sciver, will present an industry overview and highlight key long and short-term strategies on Thursday, November 8th, at 1:30pm EST.

 

Topics Will  Include: 

  • Cyclical Drivers: Changes in inventories, trade and other key factors
  • Long-term Industry Trends: A look at market maturity, returns and investment
  • Capacity: Where and how capacity changes impact industry returns
  • Industry Structure:   Discussion of current industry structure and how it is evolving
  • Asset Based vs. Freight Forwarding: How industry trends impact companies like EXPD and KNIN VX vs. FDX and UPS
  • Valuation: Fair value ranges for UPS, FDX, Deutsche Post and other key names

 

 

Participant Dialing Instructions

Toll Free Number:

Direct Dial Number:

Conference Code: 966535#

* Call will be answered by a live operator


 


Dicey Spot: SP500 Levels, Refreshed

Takeaway: Rolling the dice is not part of the process.

This note was originally published November 01, 2012 at 11:34 in Macro

POSITIONS: Long Utilities (XLU), Short Industrials (XLI)

 

What worked yesterday (and for the last month and a half) isn’t working today. TRADE or TREND?

 

I don’t know. All I know is that tomorrow is a big political storytelling day with a made-up government number slapped on top of it as we head into the home stretch of this epic Obama/Romney election. I have no idea who is going to win that either.

 

What I do know is that, across our core risk management durations, here are the lines that matter to me most:

 

  1. Immediate-term TRADE resistance = 1431
  2. Intermediate-term TREND support = 1419
  3. Immediate-term TRADE support = 1388

 

In other words, 1388-1431 is your refreshed Risk Range (on our immediate-term TRADE duration) and 1419 is proving to be a pretty good trigger line for beta (which evidently moves both ways).

 

A close above 1419 would be bullish; a close below it bearish. After the next 2 market closes, we’ll let the market tell us which way to lean.

 

For now, the easiest thing to do is take down gross exposure. Rolling the dice is not part of the process.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Dicey Spot: SP500 Levels, Refreshed - SPX


TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED

Takeaway: A bottom in the Chinese economy will likely not have nearly the same impact as it did in 2009.

SUMMARY BULLETS:

 

  • From our vantage point, the most bullish data point emanating from China in the week-to-date – inclusive of the sequential acceleration in Manufacturing PMI and the PBOC’s record $60 billion injection into Chinese money markets this week – was today’s news that China’s GDP accounting methods were to be standardized with “international standards”.
  • From a forward-looking GIP perspective: Chinese GROWTH has likely bottomed; Chinese GROWTH is not poised to accelerate meaningfully over the intermediate term; Chinese INFLATION is in a bottoming process and likely would have bottomed already had we not seen the degree of CNY strength we’ve seen in recent months; Chinese INFLATION is poised to accelerate modestly over the intermediate term; The slope of Chinese POLICY has bottomed; and The slope of Chinese POLICY is not poised to be substantially eased over the intermediate term.
  • If China continues to grow at a pace slightly faster than what we saw in 3Q for the foreseeable future, would that be enough to save the global economy from sliding into recession over the intermediate term? We don’t know. What we do know is that sell-side consensus and, by proxy, corporate management teams aren’t even in the area code of asking themselves this question.

 

From our vantage point, the most bullish data point emanating from China in the week-to-date – inclusive of the sequential acceleration in Manufacturing PMI and the PBOC’s record $60 billion injection into Chinese money markets this week – was today’s news that China’s GDP accounting methods were to be standardized with “international standards”.

 

From what we’ve noticed over the years covering dozens of countries from a bottom-up perspective, international standards for GDP accounting = shoot first; ask questions later. More specifically, we think this means China is likely to adopt a more US-style GDP presentation: report the most positive headline figure you can and subsequently revise it down 1-3 times in the coming months/years. This bodes well for a sequential uptick in China’s YoY GDP growth in 4Q12E.

 

In recent weeks leading up to the general elections, the US has certainly challenged China as the largest economic data manipulator across the Global Macro landscape (monthly Jobs Reports, Consumer Confidence, GDP, ADP Payrolls, etc.), but it looks as if China wants to take back the baton. If that is the case, do not fight them. Going back to the aforementioned point regarding the implication of this change on China’s future GDP figures, a positive inflection from 3Q would be in line with our models, as well as recent commentary from Chinese officials:

 

  • “China's growth may have bottomed out in the third quarter of 2012 and a slight rebound may be seen in the final three months of the year.” – Yu Bin, director of the Macroeconomic Research Department at the Development Research Center
  • China will achieve its full-year growth target of 7.5 percent and the rebound in the fourth quarter is likely to extend into next year.” – Jia Kang, a Ministry of Finance researcher
  • An official at the Ministry of Industry and Information Technology recently stated that stronger growth in Q4 industrial output (vs. Q3) will lay a solid foundation for China to achieve its GDP growth target of over +7.5% for this year.

 

Our latest GIP outlook for China is included in the chart below; note the potential for Chinese GROWTH to slow in 4Q12E – an event that might feel like an outright recession for companies like BMW, Caterpillar and POSCO, all of whom are explicitly banking on some form of post-leadership transition stimulus:

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 1

 

We’ve been vocal in recent weeks about our outlook on China’s economy. To sum it up in very frank clauses:

 

  1. Chinese GROWTH has likely bottomed;
  2. Chinese GROWTH is not poised to accelerate meaningfully over the intermediate term;
  3. Chinese INFLATION is in a bottoming process and likely would have bottomed already had we not seen the degree of CNY strength we’ve seen in recent months;
  4. Chinese INFLATION is poised to accelerate modestly over the intermediate term;
  5. The slope of Chinese POLICY has bottomed; and
  6. The slope of Chinese POLICY is not poised to be substantially eased over the intermediate term.

 

To points #2, #4 and #6, don’t just take our word for it; take the DRC’s official view:

 

“Next year, the economy will grow at a similar rate recorded in 2012, which is projected to be slightly higher than the 7.5 percent government target… Meanwhile, the growth of consumer price index (CPI), the main gauge of inflation, will rise to 4 percent in 2013. The figure is much higher than the below-3 percent rate predicted for [this] year. Easing measures adopted across economies, including the U.S., the European Union and Japan, have pushed up prices for global commodities and attracted inflows of short-term capital, which will likely hike CPI rates next year… The government will continue to implement a proactive fiscal policy and prudent monetary policy next year.”

-Yu Bin, director of the Macroeconomic Research Department at the Development Research Center, 10/26/12

 

On the fiscal POLICY front, it’s worth nothing that  China’s Finance Ministry had allocated 97% of the year’s budgeted funds for infrastructure spending through SEP. This means that in the absence of additional off-budget initiatives (hard to see w/ the upcoming National Party Congress dominating official attention), the Manic Media won’t be able to pester you with anymore unsubstantiated reports of Chinese “stimulus” spending that is actually nothing more than pre-planned expenditures for the rest of the year. Progress.

 

Additionally, government spending overall is up +21.1% YoY in the YTD through SEP, meaning that China will likely have to demonstrably slow the pace of expenditure growth if it is to meet its +14.1% 2012 target. Lastly, local governments, who can’t run budget deficits, may actually be feeling pressure to tighten fiscal POLICY as slowing land sales (-16.5% YoY in the YTD through SEP) forces them to turn to other measures of revenue collection (taxes, administrative fees, etc.).

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 8

 

If you accept each of the aforementioned bullet points at face value, then it should come as no surprise to see the Shanghai Composite Index remain in a Bearish Formation, Chinese interest rate markets pricing out any hopes of monetary easing over the NTM, China’s sovereign yield curve flattening, the FX market continuing to price in demonstrable weakness in the CNY and CNH over the NTM, Chinese rebar curve still exhibiting elements of backwardation.

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 2

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 3

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 4

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 5

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 6

 

Riddle us this: if China continues to grow at a pace slightly faster than what we saw in 3Q for the foreseeable future, would that be enough to save the global economy from sliding into recession over the intermediate term? We don’t know. What we do know is that sell-side consensus and, by proxy, corporate management teams aren’t even in the area code of asking themselves this question.

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 7

 

If you’d like to get caught up on our latest thoughts on China, we encourage you to check out the following notes; as always we are available via email and telephone to discourse further:

 

 

Darius Dale

Senior Analyst


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