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MACAU: IF YOU BUILD IT, THEY WILL COME

Takeaway: Infrastructure is a key driver of long term demand in Macau

Update on upcoming infrastructure projects in Macau

 

 

2013 will be the start of a transformational three years for Macau and Cotai.  We should see several important infrastructure projects in Macau come online which could bring thousands of additional mass players.  This would particularly benefit the mass-centric operators LVS, SJM, and Galaxy. Year-to-date, mass revenue has grown 33%; this is on top of the 37% growth seen in 2011.  Another 30% growth year in mass may sound far-fetched but several new pieces of infrastructure as described below can help realize that.  While VIP chugs along, Mass should continue to lead the Macau gaming market to new heights.

 

  • High-speed Rail Beijing-Guangzhou (end of 2012)
  • Phase 1 North Gongbei Gate expansion (early 2013)
    • Will have a daily passenger capacity up to 350,000 (from 300,000 currently).  When the entire project is completed later in 2013, the clearance capacity can be raised to 500,000 people daily.
  • Guangzhou Zhuhai intercity mass rapid transit (early 2013)
    • The high speed intercity railway links between New Guangzhou Station in Panyu, Guangzhou, and Zhuhai Airport in Zhuhai, via Shunde, Zhongshan and Jiangmen, in Guangdong, China.
    • The last four stations of the transit between Zhuhai North and Macau is scheduled to be completed in early 2013
  • Guangzhou-Zhuhai Super Highway- Phase III Western Delta Route (Chinese New Year 2013)
    • Connects Phase II West in Zhongshan at the northern end and extends southwards to Zhuhai. 
  • Taipa Ferry Terminal (currently temporary facility, mid-2013)
    • Full construction is expected to be done by mid-2013.  The Terminal should be open by early 2014.  The terminal will have a capacity of up to 15 million passengers a year and become the main maritime border crossing of Macau.
  • Macau International Airport (early 2013-2017)
    • Planning to add new routes to India, mainland China and other regions.
    • A new hangar for business aircraft will be built by early 2013 to cope with the development of this high-potential sector due to the continuous emergence of new casino-resorts and luxury hotels in Macau. 
    • With the expansion project, the first phase of expansion can meet a volume of 5.6 million passengers in 2015, the second phase will be 7 million in 2020, upgrading to 11 million in 2030 and finally 15 million in 2039.
  • Bridge connecting Hengqin Island and Mainland (February 2014)
    • Hengqin's second bridge is expected to be completed by February 2014.  The bridge will be 6.8 kilometers which incorporates six lanes, becoming the second link between the Hengqin New Area and mainland China which aims to help alleviate the bottleneck congestion.
  • Light Rail Transit (May 2015)
    • The 3.4km Cotai Section consists of four stations covering the major resorts in the Cotai Strip as well as the centre of Taipa village, while the 3.1km Lotus Border Crossing Section has three stations linking the Macau University of Science and Technology, the airport and the Pac On Ferry Terminal.  The 1.9km section with five stations linking Taipa village and the Sai Van Bridge started its construction in February 2012.
  • HK-Zhuhai-Macau bridge (2016)
    • On schedule for 2016.  The bridge will shorten the distance from Hong Kong to Macau and Zhuhai from 60 km to 30 km, and reduce the journey time to within half an hour, for an estimated charge of RMB 100-150 each way.
  • New border checkpoint (TBD)
    • A new border crossing checkpoint connecting Zhuhai and Macau located on a land plot currently hosting the South Guangdong (Nam Yuet) Wholesale Market is currently being considered by the central government in Beijing.  Macau's CEO Chui recently said preparation works for the checkpoint are going as scheduled.  The new checkpoint is expected to run all day. 

JOSHUA STEINER: INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION

Takeaway: New York, New Jersey and Pennsylvania account for 13% of the U.S. population, but accounted for 70% of the rise in initial claims 2 wks ago.

Quantifying NY, NJ and PA

Last week we urged investors to remain calm in anticipation of what we thought would be mean reversion over the coming two months. This morning's 41k decline in initial claims is a good down payment on that mean reversion. We got the state level data on a one week lag, so now we can evaluate where the surge in claims last week came from. In short, they came from NY, NJ and PA. To put some numbers around it, total non-seasonally adjusted initial jobless claims rose by 116,743 two weeks ago. New York accounted for 43,956 of that, or 37.7%, but New York represents just 6.2% of the U.S. population. New Jersey accounted for 31,094 of the increase, or 26.6%, but represents just 2.8% of the population. Pennsylvania, meanwhile had an increase of 7,037 initial claims, which was 6.0% of the total, despite being just 4.0% of the U.S. population. Taken together, these three states, NY, NJ and PA, accounted for 70.3% of the total increase in jobless claims two weeks ago following Hurricane Sandy, while those same three states represent 13.0% of the U.S. population. We think it's fair to say that Hurricane Sandy was clearly responsible for surge in claims. 

 

In the first chart below we update our plot of seasonally-adjusted claims comparing the effects of Hurricanes Katrina and Sandy. We expect the path of Hurricane Katrina will be a reasonable proxy for what to expect over the coming six weeks from Hurricane Sandy. 

 

The Data

Initial claims fell 29k last week to 410k (but fell 41k after the 10k upward revision to last week's data). Rolling claims rose 9.5k WoW to 396k. Non-seasonally-adjusted claims were lower by 81k WoW.

 

JOSHUA STEINER: INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 1

 

JOSHUA STEINER: INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 2

 

JOSHUA STEINER: INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 3

 

JOSHUA STEINER: INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 4

 

JOSHUA STEINER: INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 5

 

JOSHUA STEINER: INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 6

 

JOSHUA STEINER: INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 7

 

JOSHUA STEINER: INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 8
 

JOSHUA STEINER: INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 9

 

JOSHUA STEINER: INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 10

 

JOSHUA STEINER: INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 11

 

JOSHUA STEINER: INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 12 

 

JOSHUA STEINER: INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 13

 

Joshua Steiner, CFA

 

Robert Belsky


Macau: The Lion's Share

Our Gaming, Leisure and Lodging team has put out a chart detailing the Macau property EBITDA share of gaming companies. We think Las Vegas Sands (LVS) will continue to gain revenue and EBITDA share thanks to strong performance from the Venetian. EBITDA share has improved 2.8% quarter-over-quarter to 27.9%. And due to stellar results at Galaxy Macau, Galaxy has moved into 2nd place in terms of EBITDA share. MGM Resorts (MGM) continues to hold the rear as Q3 was negatively impacted by low hold on direct play and rolling chip play.

 

Macau: The Lion's Share - macauEBITDA


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INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION

Takeaway: New York, New Jersey and Pennsylvania account for 13% of the U.S. population, but accounted for 70% of the rise in initial claims 2 wks ago.

Quantifying NY, NJ and PA

Last week we urged investors to remain calm in anticipation of what we thought would be mean reversion over the coming two months. This morning's 41k decline in initial claims is a good down payment on that mean reversion. We got the state level data on a one week lag, so now we can evaluate where the surge in claims last week came from. In short, they came from NY, NJ and PA. To put some numbers around it, total non-seasonally adjusted initial jobless claims rose by 116,743 two weeks ago. New York accounted for 43,956 of that, or 37.7%, but New York represents just 6.2% of the U.S. population. New Jersey accounted for 31,094 of the increase, or 26.6%, but represents just 2.8% of the population. Pennsylvania, meanwhile had an increase of 7,037 initial claims, which was 6.0% of the total, despite being just 4.0% of the U.S. population. Taken together, these three states, NY, NJ and PA, accounted for 70.3% of the total increase in jobless claims two weeks ago following Hurricane Sandy, while those same three states represent 13.0% of the U.S. population. We think it's fair to say that Hurricane Sandy was clearly responsible for surge in claims. 

 

In the first chart below we update our plot of seasonally-adjusted claims comparing the effects of Hurricanes Katrina and Sandy. We expect the path of Hurricane Katrina will be a reasonable proxy for what to expect over the coming six weeks from Hurricane Sandy. 

 

The Data

Initial claims fell 29k last week to 410k (but fell 41k after the 10k upward revision to last week's data). Rolling claims rose 9.5k WoW to 396k. Non-seasonally-adjusted claims were lower by 81k WoW.

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Sandy Vs Katrina  2

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - claims by state

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - seasonality

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - NSA YoY linear

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Raw

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Rolling

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - NSA

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - rolling NSA

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - S P

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Fed

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Initial Claims YoY  2

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Recession

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Claims Linear

 

Yield Spreads

The 2-10 spread rose 7 bps WoW to 140 bps with all the improvement coming from the 10-year. The 2-year was flat. So far 4QTD, the 2-10 spread is averaging 1.43%, which is up 6 bps relative to 3Q12.  

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 2 10

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 2 10 QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over multiple durations.   

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Subsector Performance

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - companies

 

Joshua Steiner, CFA

 

Robert Belsky


The Right Time For Nike

 

As we continue to present snippets from our Best Ideas call that we held for our institutional clients last week, we move into the Retail sector with a long call on Nike (NKE). Retail Sector Head Brian McGough sees Nike as a great brand and great growth algorithm in the immediate-term TRADE duration. Gross margins have weighed on the stock in recent quarters but we believe that’s about to change. Current consensus expectations for Nike’s upcoming quarter are too low.

 

Nike’s numbers tell a great future growth story but importantly, their numbers will begin to improve immediately. Inventories are beginning to come down while gross margins improve and that’s something that gives us conviction when looking at NKE.

 

Watch the above video for McGough’s full take on Nike.

 


Tough Times

Client Talking Points

Question The Markets

The market has been quite unpredictable over the past week. The S&P 500 is down -1.7% November-to-date and there’s no distinct catalyst that moves the market each day. On top of it all, the lack of volume makes for big swings that are unjustified in a sense that don’t correlate with the underlying fundamentals of what’s truly happening right now. Growth is slowing, commodities are weakening and the Fiscal Cliff is still unresolved. If the latter can be addressed in a quick and decisive matter, then you can expect the market to cheerlead and head to the upside. 

Asset Allocation

CASH 49% US EQUITIES 6%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 24% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
TCB

After a long downward slide, TCB has finally turned the corner. The margin has stabilized after the balance sheet restructuring. Loans are growing thanks to the equipment finance business. Non-interest income is more likely to go up than down going forward, a reversal from the past 18 months. Credit quality has a tailwind from a distressed housing recovery in TCB’s core markets: Minneapolis, Detroit and Chicago. On top of this, the CEO, Bill Cooper, is one of the oldest regional bank CEOs, which raises the probability that the bank will be sold. Expectations are bombed out at this point, so we think it’s time to move from bearish to bullish on TCB.

IGT

There is improving visibility on 20%+ EPS growth with P/E of only 11x with better content leading to market share gains. New orders from Canada and IL should be a catalyst. Additionally, many people in the investment community are out in Las Vegas at the annual slot show (G2E) and should hear upbeat presentations by management.

HCA

While political and reimbursement risk will remain near-term concerns, on the fundamental side we continue to expect accelerating outpatient growth alongside further strength in pricing as acuity improves thru 1Q13. Flu trends may provide an incremental benefit on the quarter and our expectation for a birth recovery should support patient surgery growth over the intermediate term. Supply costs should remain a source of topline & earnings upside going forward.

Three for the Road

TWEET OF THE DAY

“Hilsenrath lives!!” -@Commodity_Bull

QUOTE OF THE DAY

“Time is that quality of nature which keeps events from happening all at once. Lately it doesn't seem to be working.” -Anonymous

STAT OF THE DAY

Jobless Claims fell by 41,000 last week to 410,000.


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