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SMOKIN IN THE BOYS ROOM

We haven't run the regression but we're pretty sure the correlation of male smokers to gamblers is pretty high. It's looking more likely than not that the smoking restrictions will go into effect in January. 

 

 

While there might be a delay in the implementation of the new smoking rules from January 1st to January 14th, it is unlikely the casinos will be able to successfully lobby for any further delay.  Once implemented, we believe there will be a major impact on the main gaming floor on table efficiency and labor costs as casinos will have a lot more players per table on the smoking tables.  It is unknown yet whether the casinos will be allowed to push less productive games into the non-smoking section or if regulators will require an equal distribution.

 

While the new smoking restrictions will likely supress demand and maybe impact margins, we don't believe there will be long-term ramifications.  However, we would caution that Q1 could be disappointing.  Since only the main gaming floor will be impacted, LVS and SJM could be the most at risk due to their Mass based business model.  LVS has built the most spacious gaming floors so that should alleviate some of the productivity issues.  Moreover, LVS is still ramping with Cotai Central and we think it's overall share will continue to grow to the low to mid 20s.

 

An order from the Macau CEO regarding the smoking ban was published in the Macau Gazette on November 5th and is summarized below:

  • Rules apply to all table games and slot machines
  • Smoking areas cannot be greater than 50% of the total area for the public
    • This rule excludes non-gaming establishments
  • Smoking areas must display the following:
    • Posters addressing no-smoking zones
      • Label with minimum dimension (40cm x 30cm) in Chinese, Portguese, and English 
    • Separation from other installations
    • Ventilation systems
  • Smoking area locations
    • In casinos with several floors and an atrium, smoking areas should be located on the upper floors
    • In casinos with a single floor, smoking area must be located opposite and separate from the non-smoking area.
  • Non-smoking areas can be achieved through the following measures:
    • Air curtain system
    • Transition area with inflation system
    • Transition area of at least 4 meters
    • Installation of a wall or fence with a minimum of 2 meters

WEN: Can We Get A Pulse?

Wendy’s (WEN) just announced it would be doubling its dividend and initiating a $100 million stock repurchase program. While that’s nice for existing shareholders of record, the truth is that the company has better uses for that amount of cash. WEN’s stock fell in 2007 through 2008 and has flatlined since. This stock is in dire need of some kind of boost as it continues to trade in a tight range year-after-year.

 

WEN: Can We Get A Pulse? - WENDYS


GENTING Q3 DETAILS

Genting Singapore’s numbers came in-line with our expectations.  While the official consensus number hasn’t changed since early October, whisper EBITDA was close to the reported S$300MM.  We don’t have a call on the stock right here, but thought it may be helpful to provide a little more detail on the quarter given the opaque nature of the company’s reporting.

 

 

3Q12 Detail

  • Gross gaming revenue of S$797MM on net gaming revenue of S$528MM
    • Rebates, GST & mass marketing points of S$269MM; equal to 33.7% of GGR  (slightly down from the 33.8% in 2Q12 but up from 31.8% in 3Q11)
    • Gross VIP revenue of S$363MM and net VIP revenue of S$190MM
      • Just to clarify, when the Company says that Net RC revenues are 28% of Net Casino revenue, they are not just referring to the rebate on VIP but ALL discounts offered on gaming play (ie, Rebates, Mass points, GST, comps, MVP’s and other).
      • 45.5% of GGR
      • RC turnover:  S$13BN (just under) down 20% YoY and 2% QoQ
      • Hold rate:  2.8%
      • Rebate:  1.33% or S$172MM, down from 1.36% last quarter but up from 1.32% last year
  • Mass win of S$285MM down 9% YoY and up 1% QoQ
    • Drop of S$1.24BN and hold of 22.9%
  • Slot & ETG win S$150MM
    • Handle down 4% QoQ to S$2.95BN and 1% YoY
  • Expenses:
    • Gaming tax:  S$78.5MM
    • Estimated fixed costs:  S$198MM, down from S$217MM in 2Q12

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Restoration Hardware Q&A

Today, we held a call with Hedgeye Retail Sector Head Brian McGough on Restoration Hardware’s (RH) upcoming IPO for Retail Pro subscribers. McGough covered everything from growth to target markets to financial difficulties. We’ve provided the Q&A portion of the call for you to enjoy. If you’re interested in becoming a Retail Pro subscriber, please visit this webpage.

 

 


IDEA ALERT: SHORT MGM

Takeaway: MGM could continue to be under pressure

Keith shorted MGM in our Real-Time Positions at $9.95.  MGM's TRADE and TREND resistance is at $10.29 and $10.76, respectively.

 

 

As MGM nears its 52-week low, we think there is further room to the downside.  A difficult macro environment and a secular decline in slot demand should continue to pressure results.  We're below the Street on Q4 and 2013.  Slot volumes, which we believe is the ultimate barometer of the health of Vegas, have fallen in five out of the last six months.  According to our trend projection model, we expect the downward trend to continue for the rest of 2012.  September was up slightly but the month contained two extra weekend days - a calendar boost that will reverse in October.  Management did say they are seeing better Strip trends in early Q4 but they said the same last quarter and missed expectations badly.   

 

IDEA ALERT:  SHORT MGM - mgm23


European Banking Monitor: THE ELECTION, THE CLIFF AND THE AUSTERITY

Takeaway: The election, fiscal cliff and renewed EU concerns triggered sharp selloffs in Financials. Credit markets were dragged lower as well.

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

 

Key Takeaways:

 * U.S and EU bank swaps were wider last week, on the heels of the American presidential elections, mounting fears about the looming fiscal cliff in the United States, and renewed concerns regarding Greek austerity. In the United States the money center banks and the large brokers saw that most widening. In Europe, bank swaps were wider, led by Italy, Spain, and France.

 

 * On OMTs Reporting: The ECB has stated that Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis and the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis. There is no indication that the OMTs has been initiated to date.

 

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If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.

 

Matthew Hedrick

Senior Analyst

 

(o)

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European Financials CDS Monitor – European financials followed Euro sovereigns, widening wee-over-week. Swiss banks were wider by 6 bps, while Spanish and Italian banks widened by 10-32 bps. French banks widened noticeably, while German banks widened slightly.

 

European Banking Monitor: THE ELECTION, THE CLIFF AND THE AUSTERITY - aa. banks

 

Euribor-OIS spread – The Euribor-OIS spread widened by 1 bp to 12 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk.

 

European Banking Monitor: THE ELECTION, THE CLIFF AND THE AUSTERITY - aa. euribor

 

ECB Liquidity Recourse to the Deposit Facility – No change in the trajectory here - overnight deposits continue to shrink. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  

 

European Banking Monitor: THE ELECTION, THE CLIFF AND THE AUSTERITY - aa. facility


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