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MACAU: A PREVIEW OF THE PREVIEW

Recently updated Q1 Macau EBITDA and hold adjusted EBITDA projections – MPEL looks great

 

 

Q1 earnings season should be decent for the Macau operators although there are only 2 real standouts – both were impacted by low hold.  On a hold adjusted basis, which is what we care about, MPEL and MGM Macau performed very well in Q1.  Wynn Macau is the only property that looks like it could post a slight miss relative to consensus but that would be on a hold adjusted basis as our projection for actual EBITDA exceeds consensus slightly.

 

MPEL remains our favorite name in the space with the catalyst of a terrific Q1 earnings release looming.  More importantly, the stock remains incredibly inexpensive relative to most Macau names and could be ripe for a 2-3 multiple turn increase in its EV/EBITDA valuation.  As we wrote about in our note “INVESTABLE MPEL” on 03/21/13, MPEL should transition from a trading vehicle to a core long-term holding for many long only investors which should help inflate the multiple to something more realistic:  11-12x (post-opening of MSC).   

 

MACAU: A PREVIEW OF THE PREVIEW - hold3


FIRST WEEK OF APRIL IN MACAU

ADTR up 10% YoY - too early to make any calls

 

 

Daily table revenues (ADTR) averaged HK$847 million during the first 7 days of April, up 10% YoY.  Our full month projection is for GGR of HK$26.5-27.5 billion which would represent YoY growth of 9-13%.  MPEL and LVS are off to great starts.  Still too early in the month to make any real conclusions about trends or market shares.  

 

FIRST WEEK OF APRIL IN MACAU - mmm1

 

FIRST WEEK OF APRIL IN MACAU - mmm2


News From Our Sector Heads

Todd Jordan (GLL):

 

Ambrose So fears H7N9 may affect gaming (via Macau Business)

 

Jay Van Sciver (Industrials):

 

Alcoa 1st Quarter Earnings Conference (via Alcoa)

 

Kevin Kaiser (Energy):

 

Killing Keystone Seen as Risking More Oil Spills by Rail (via Bloomberg)

 

Josh Steiner (Financials):

 

EU antitrust regulators to investigate MasterCard card fees (via Reuters)

 

Citi files Nasdaq claim over Facebook IPO (via Financial Times)

 

Howard Penney (Retaurants):

 

Caribou Coffee Closings: Chain Reveals Massive Nationwide Shutterings, Chicago Area Hit Hard (via HuffPo)

 

Brian McGough (Retail):

 

Ron Johnson Ousted As JCPenney CEO (via Forbes)





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PODCAST: The Three Points

 

On today’s Morning Investment Call held for Hedgeye subscribers, CEO Keith McCullough discussed an amalgamation of market catalysts ranging from the risk range of the S&P 500 to what lies next for the yield on the 10-Year Treasury. Keith is still a big buyer of US stocks and the US dollar and a seller of commodities. Remember: get the US dollar right and you get a lot of other things right. His three big points this morning focus on Chinese deflation, the 10-year and recent moves in crude oil. When Brent moves to the downside, it should get your attention



THE M3: SO COMMENTS ON BIRD FLU; CHING MING VISITOR ARRIVALS

The Macau Metro Monitor, April 9, 2013

 

 

AMBROSE SO FEARS H7N9 MAY AFFECT GAMING Macau Business

SJM CEO Ambrose So said the new H7N9 virus could impact the gaming business if by the holiday period its causes are still unknown, and no effective measures are put in place to control it.  Nonetheless, he said he remained optimistic about business during Golden Week, but added that if the H7N9 situation worsens it would be quite worrying.


Business Daily reports that at least one casino operator in Macau is already checking the body temperature of employees arriving at work.  So also said that SJM would consider “strengthening preventive measures” in its casinos against the H7N9 virus – possibly via body temperature checks on guests.

 

In a meeting yesterday, mainland, Hong Kong and Macau officials decided to step up surveillance of live poultry and poultry products, by increasing the sample size and frequency of farm inspections, official news agency Xinhua reported.

 

VISITOR ARRIVALS UP IN CHING MING Macau Business Daily

The number of visitors coming to Macau topped 457,000 during the four-day Ching Ming holidays, up by 4% from the same period of last year, the Public Security Police said.  The first three days of the tomb-sweeping celebration (April 4 to 6) also marked the first trial of a temporary two-hour extension in the opening hours of the Gongbei border.

 

Asked yesterday if the opening hours of Gongbei border would be extended again during next month’s Labour Day Golden Week, Macau CEO Chui declined to reply.  He hopes eventually the border will be open around the clock.


SJM CEO So said longer opening hours in the border was “good” for the gaming industry.  He noticed an increase in the number of people visiting casinos and of chips purchased during the Ching Ming holidays.  But he quickly added that figures for only a few days “cannot reflect a trend” on whether longer opening border hours would boost casino revenue.


The Perks of The Dollar

Client Talking Points

Chinese Deflation

The effects of the US dollar gaining strength week-after-week are being heard around the world. China is seeing a decrease in inflation as global food prices come down hard. Asian stocks are up this morning after Chinese CPI fell hard on a month-over-month basis to 2.1% in March vs 3.2% last month.

Confuse The Masses

The 10-year Treasury is in a nice little niche right now that can confuse the bulk of investors out there. "Which way will it go?" they'll ask. The 10-year has been making lower highs since March but is bearish on our immediate-term TRADE duration as 1.83% as resistance. If it can't break that level, expect lower yields as people think twice about Japanese and US bonds. 

Asset Allocation

CASH 26% US EQUITIES 28%
INTL EQUITIES 22% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 24%

Top Long Ideas

Company Ticker Sector Duration
DRI

Darden stands to be a beneficiary from a housing recovery and an improved employment picture, which boosts casual dining trends. The company's net income declined on its recent earnings report but beat the Street's expectations.

FDX

With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.

HOLX

HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road

TWEET OF THE DAY

"Fidelity Considers Scrapping Securities Lending Program [GC]" -@alea_

QUOTE OF THE DAY

"To succeed in the world it is not enough to be stupid, you must also be well-mannered." -Voltaire

STAT OF THE DAY

The March small-business optimism index of the National Federation of Independent Business fell 1.3 points to 89.5.


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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

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