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Solid Growth In Macau

Macau average daily table revenue (ADTR) grew 17% year-over-year last week, in line with our expectations and a solid week nonetheless. For the month, we’re predicting year-over-year growth of gross gaming revenue (GGR) of around 5-10%, well above October’s 4% growth. We think that December will improve to the point where it exceeds November; the only reservations we have at the moment are smoking restrictions that may go into effect in early-to-mid January. 

 

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SMALLER LESS SMALL

Takeaway: No need to panic now but the small players need to be watched

The little slot guys trying to play with the big boys

 

We've been waiting years for this but could the small guys finally be making their move?  Ok, we're not ready to call the end of the big boy dominance of the slot market.  Outside the top 5, the small guys will still only comprise 7% of North American ship share (excluding Canadian replacements).  However, that's more than double what it was in 2008.  The product is much better coming out of MGAM, Aruze, et al.  So while there is no need to begin cutting estimates on IGT, BYI, WMS, Aristocrat, and Konami, this is a trend that needs to be monitored.  We continue to believe that IGT, at least over the near and intermediate term, is the least likely to bear a material (to them) share impact from the new competition because of their product depth.

  • In 2008, we estimate that the top 5 suppliers had North American ship share of 97%
  • In 2012, we estimate that the top 5 suppliers will only have 87% ship share in North America
    • 6% of the decline is due to Spielo’s large share of the currently ongoing replacement cycle in Canada
    • However, even without the Canadian replacement cycle, we estimate that the top 5 share would still decline to 93%
  • Some of the small players that are slowly but surely gaining traction in the for-sale market include:
    • MGAM
      • 2009:  entered the market with 132 units
      • 2012:  on track to ship over 2,000 units to NA
      • Continuing to get licensed in many state jurisdictions, including Nevada in 2013, which should almost guarantee MGAM above market growth
    • Aruze
      • We estimate that Aruze had approximately 300 units “sold” in 2010 and are currently on track to sell about 750 units this year.
      • They are still predominantly focused on participation / leases
    • Spielo - They are a player in VLT/VGT markets and are beginning to develop better content for Class III.  Through Wells-Gardner, they have already secured over 1,800 IL VGT contracts.
    • Ainsworth
      • In 2010, Ainsworth sold approximately 475 machines into NA. 
      • In 2012, they are on track to sell around 1,700 units

 

SMALLER LESS SMALL - spielo


IGT: Simply The Best

 

Last week, we held our bi-annual Best Ideas call for institutional clients. The call focuses on our best actionable ideas from each sector head and today, we’re pleased to bring you Gaming, Leisure and Lodging Sector Head Todd Jordan’s idea: International Game Technology (IGT). After being negative on IGT for years, Jordan is now bullish on the stock due to improving EPS growth, a low P/E ratio of 11x and the company’s ability to grow market share through quality content. 

 

Another positive for IGT is that it has accelerating cash flow; returning cash to shareholders is now a priority and increases the possibility for stock buybacks. Jordan is long on the immediate-term TRADE (3 days) duration and the intermediate-term TREND duration (3 months).

 

Watch the video we’ve posted for Jordan’s full rundown on IGT. You’ll easily see why it’s one of our best ideas.


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Improvements In Housing

One of the most important metrics for the housing market is existing inventory of homes for sale. Existing inventory recently moved lower (a positive for the market) by 7.8% on a month-over-month basis for October and 21.9% on a year-over-year basis. Levels continue to tighten which helps improve price and rid the market of excess housing. The charts below showcase the current state of the housing market over various metrics.

 

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Time To Regroup

Client Talking Points

The No Volume Rally

Despite volume being down -21% yesterday versus the November average, stocks decided it was time to load up on steroids and rip to the upside with the S&P 500 blowing past our TAIL line of support at 1364 and closing at 1386. A reminder that our risk range  is 1364-1401 with the latter number being a real test of confidence for the market. We’re still down -6% from the Bernanke Top (aka September 14 YTD high) so you could consider yesterday to be a short squeeze or whatever buzzword floats your boat. The truth of the matter is that our three top macro themes remain intact: Earnings are slowing, the commodity bubble is popping and the Keynesian Cliff remains a problem that has yet to be addressed properly.

Major Meltdown

Our #EarningsSlowing theme has really been a focal point for the market over the last month. We’ve seen big boys like FedEx (FDX) and Caterpillar (CAT) guide down and plenty of misses versus Street consensus. #OldWall thinks that things really aren’t all that bad and yet each day, we get bad news or data that you think would make them change their mind. After last week’s selling, you can’t help but wonder what the people who said that stocks were “cheap” were thinking.

Asset Allocation

CASH 52% US EQUITIES 6%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 21% 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

“I like how Meg Whitman is blaming "fraud" on the disastrous Autonomy acquisition. More like complete $HPQ board & management incompetence” -@Contrahour

QUOTE OF THE DAY

“Skeptical scrutiny is the means, in both science and religion, by which deep insights can be winnowed from deep nonsense.” -Carl Sagan

STAT OF THE DAY

China Foreign Direct Investment (FDI) remains down -3.5% year-over-year through October.


THE M3: GAMING ZONES; RUSSIA; BOUTIQUE COTAI CASINO; CHANGI

The Macau Metro Monitor, November 20, 2012

 

 

RELOCATION OF SLOT MACHINES PARLOR OUTSIDE COMMUNITY TO BE LEGALIZED Macau Daily News

The Macau govt will draft laws to regulate the location, features, rules and operations of gaming venues, in an attempt to resolve gaming related problems, such as removing slot machines venues away from the community.  Secretary for Economy and Finance Francis Tam said the government will soon roll out the definition for ‘gaming zones’ and ‘non-gaming zones’ in 2013, in which case, gaming venues within gaming zones will need to be relocated.

 

The government is going to strengthen gaming supervision in 2013 to push ahead the development of gaming business in a moderate and orderly manner. Efforts will be made to cap the commissions for junket promoters to no higher than 1.25% of the total bets.  The database of junket promoters will continue to be improved and the minimum internal control requirements should be carried out on a sustainable basis.

 

FIRST CASINO BEING BUILT IN FAR EAST GAMBLING ZONE RIA Novosti, Las Vegas Review Journal

According to the administration of the Primorye Region, the construction of a first casino and a hotel has begun in the Far Eastern gambling zone.  The first stage of the Primorye gambling zone project, due to be completed by 2015, is supervised by the region’s governor Vladimir Miklushevsky.  Plans call for 12 casinos with the first phase of a three-part rollout to be completed by 2016 and a planned total investment of about $2 billion.  “The gambling zone itself is not the most important thing, but it is like an anchor. In the modern tourism business, income from the gambling zone itself makes from 30 to 40% of all tourism revenues. The rest comes from other sources, such as amusement parks and shopping centers,” Miklushevsky said.

 

Vladivostok is one of the four regions allocated by the Russian government to have gaming.  The mountainous region bordering China and Korea is roughly a two-hour flight from Seoul or Tokyo.

 

COTAI BOUTIQUE CASINO HOTEL TO ISSUE SHARES IN HONG KONG Macau Business

The project for a boutique casino hotel in Cotai, just next to One Oasis residential project, is one step closer to becoming a reality.  The investors are eyeing to inject the project into Hong Kong-listed construction and property management company Paul Y. Engineering Group Ltd, PYE for short, and then use the company as a platform to raise capital.

According to a PYE stock filing dated from yesterday, there is already has an agreement to buy the land needed for the casino hotel from the developers of the One Oasis residential project.  The total estimated cost of the project is HK$6 billion (US$774 million), including the cost of the land.  To help fund the project, there are plans to raise up to HK$800 million through a stock placement. An additional HK$2.4 billion will be raised through issuing convertible bonds.

 

Stephen Hung, the vice chairman of Rio Entertainment Group, the holding company that operates Rio Hotel & Casino on the peninsula, has already indicated his intention to subscribe for HK$200 million worth of placing shares and/or placing convertible bonds.  Construction could start early next year in order for the property to be ready by 2016.  In the stock filing, it is not disclosed under which casino operator’s gaming licence the casino would operate.

 

The boutique casino hotel, to be built on a 6,000-square meter plot, is projected to have 66 live gaming tables.

 

MONTHLY BREAKDOWN OF PASSENGER MOVEMENTS Changi Airport Group

Singapore's Changi airport saw passenger traffic rise 10% in October.

 

THE M3: GAMING ZONES; RUSSIA; BOUTIQUE COTAI CASINO; CHANGI - CHANGI

 



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