• It's Coming...

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

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

OVERALL:   BETTER: Volumes were healthy across both properties and EBITDA was above the Street even before adjusting for low hold. The new financing also removes some very restrictive covenants and allow MPEL to pay a dividend once they are have some of their constructive out of the way in 2014.

COD PERFORMANCE

  • BETTER:  Despite low hold, COD EBITDA handily bear consensus estimates. Mass and VIP volume growth exceeded that of the market.
  • PREVIOUSLY: "City of Dreams continues to maintain its market-leading mass market yields when compared to all other major mass-focused properties in Macau, while at the same time, it has delivered strong improvements in rolling chip table yields over the prior period."

ALTIRA PERFORMANCE

  • SAME:  Altira delivered GGR growth with 40 less tables YoY  
  • PREVIOUSLY: "Altira Macau has also delivered substantially improved per table operating metrics compared to the previous quarter, which we are confident can be further built from here."

MSC TIMELINE

  • SAME:  Studio City remains on track to open around the middle of 2015.  Has done 95% of the piling work is complete. ...ready to move on to the basement. have 500 workers on site with the main contractor.  
  • PREVIOUSLY: "Studio City is moving ahead on its expected timetable, with the majority of the piling and foundation work now complete. We have also recently engaged on a fixed price lump sum contract basis, our main contractor, providing us greater clarity and certainty around Studio City's design and construction costs. We remain on track to open this property around mid-2015."

COD PHASE III

  • SAME:  Still waiting for the land to be re-gazetted.  They are optimistic that the project can begin by the end of 2013.
  • PREVIOUSLY: "City of Dreams, Phase 3, the additional tower – we're going through the formal government approvals because we have upgraded the building and included more amenities. So assuming it gets approved, we are hoping that we could get started on that project, probably the middle or the later half of next year."

MANILA TIMELINE

  • SAME:  Manila project remains on track to open by mid-2014.
  • PREVIOUSLY: "With our current expected investment upon opening of both Phase 1 and 2 of the project expected to be around US$600 million, we believe this venture offers the company an opportunity to deliver strong returns on invested capital while also providing us with a platform for future expansion throughout Asia. We currently expect those Phases to open together by the first half of 2014."

PROJECT CAPEX FUNDING

  • SAME: For MSC, won't know for a few more months on whether their partner will choose to fund part of the $225MM sponsor guarantee or whether MPEL will increase their ownership stake and fund 100% of the guarantee.   In Manila, they expect to spend $450-475MM capex in 2013 which could be funded through a local loan but all options are on the table, including raising equity. Have plenty of cash to fund Phase III of CoD
  • PREVIOUSLY: "In addition to the Studio City numbers that we've already discussed, we anticipate spending approximately $600 million in Manila upon opening. And as we said, we anticipate having $325 million of that funded through a local loan. So, you can back into our equity component there. And you're correct on Phase 3 of City of Dreams, that will be funded by cash and internally generated cash flow."

2013 OUTLOOK

  • SAME:  Chinese economy is picking up and optimistic about the new administration.  MPEL expects at least 10-15% YoY market growth in 2013. 
  • PREVIOUSLY: "So heading into next year and hoping that some of the global headwinds like the European – people get used to the European debt crisis and there's less headwinds, and eventually, I think the Chinese leadership, they've had a very tight grip on the various sectors such as the real estate sector which has impacted asset prices. But once those things are behind and with the new leadership in place, I'm quite optimistic about next year."

VIP TABLE YIELDS

  • SAME: "Our table use at the City of Dreams continue to outperform all other major properties in Macau while at the same time our table yields in the rolling chip sector are both Altira and City of the Dreams continue to improve. Our table optimization initiative is ongoing, as we proactively look for ways to maximize the performance"
  • PREVIOUSLY: "In terms of the yield on the VIP side... we are a little bit discount to the leading property at the moment. So I guess we have put plans in the optimizing process during the last three quarters in both Altira and CoD. This is a ongoing process, and we hope that we could be able to stabilize Altira at the moment, but we are still continuing to put the effort in CoD. So you will see some improvement in the next few quarters."

MARGIN GUIDANCE

  • WORSE:  Q4 marings came in at 22.5%, in-line with 3Q margins, due to unfavorable hold.  However, mix remained steady as well with non-VIP segments comprising 75% of luck adjusted at CoD and two-thirds of EBITDA on a group-wide basis
  • PREVIOUSLY: "In terms of the mass and VIP mix, I think it's a ongoing process and you'll see some margin-based improvement if we are doing this new performance in the next few quarters."