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LVS YOUTUBE

In preparation for LVS's 1Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.

 

 

POST-CONFERENCE COMMENTS

 

MACAU

  • "I think the most underrated part of our portfolio is our pure mass table business and our slot/ETG business, we now have 6,000 positions in the slot/ETG segment, which we think will, the next few years, grow to $1 billion of top line at a 48% margin."
  • "[SCC] "We did do one thing, we're working on that, is improving the premium mass space for gaming. It doesn't have a great premium mass area. We're taking one of the theater boxes and repurposing that for gaming and that would be a very upscale 90 table first quarter of 2014. That's the missing component in the VIP segment in the mass and SCC."
  • [Site 3] "We'll raise project financing, which we're in the process, of doing of about $2.7 billion, so an equity check of about $700 million. Hopefully, we'll be done with it based upon our development timeline by, let's call it, the middle of December of 2015. That's at least the target timeframe. It's a wonderful theme property, probably about 3,000, 3,200 hotel rooms, probably about 4.3 million square feet or 4 million square feet."
  • "If you look at the premium direct business in Macao, the reserve against that's about 40%."

SINGAPORE

  • "The non-gaming piece, it's a magnificent hotel property. It's got 2,600 keys. The ADR is approaching 375. It runs almost full, 95%, 98%."
  • "The mall - it's got very, very successful segments. It's making more than $10 million a month, $30-some million a quarter. But we think there's magnificent upside in the mall as we rethink the mall."
  • "We'll have [VIP] margins about 30%, but it's not like Macao, where it's easy."
  • [VIP] "We should make $350 million or $450 million a year out of that segment."
  • [Mass win/per day] "And if we get that number from $4MM or was it, I think $4.4MM or $4.5MM last quarter, we get that back up into a growth market at a 70-point margin, that's the sweet spot of our Singapore growth on the casino side."
  • "We're about 30% reserved, if you will, in terms of the receivable balance. We expected our reserve provision against receivables to grow in that 35% to 40% range."

VEGAS

  • "I think Vegas remains challenging."
  • "I still think the spend – we can sell rooms and we can occupy buildings. And it looks busy, but the spending habits still haven't come back where they were. The two upside businesses here today in Las Vegas are high-end Asian, which we're very fortunate to be participating in that. We had a wonderfully busy Chinese New Year's and we stayed busy. I mean Chinese New Year's used to be the most of the business, now it's year-round Chinese people coming to Las Vegas."

 

YOUTUBE FROM Q4 CONFERENCE CALL

 

SINGAPORE

  • "I think we're starting to see it in the first quarter (benefit from new hires targeting premium mass gamer). I think we'll see it progressive throughout this year. Frankly, we're doing two things. We're revisiting our database in the premium mass. We're also opening offices. And I think you'll see that progress fully in 2013. I do think there's real opportunity to grow this segment materially as we get into 2013 and 2014."
  • "Singapore is the most challenging credit market from a perspective of, a) highly concentrated; b) very little legal help in the region to collect; and c) there is no junket buffer. So as I said in the past, I remain optimistic, but cautious."
  • "We've been talking about Tower 3 putting a new VIP facility up there for some period of time. I was in Singapore just a few weeks ago and we did receive a request for information from the government from certain government agencies about putting more details on the request, which we are now submitting. But I don't expect you'll see something like that happen because there's about a year construction period where it would happen. As far as additional rooms are concerned and additional buildings, we've had some conversations but nothing is quite moving forward at this point."

KOSPI: Back In Play

Korea's KOSPI index is heavily tied to the performance of severa outside factors, including the value of the Japanese Yen and the US tech sector. So with the S&P 500 hitting new all-time highs, it should come as no surprise that the KOSPI was up +1.2% this morning, heading above our TREND line of resistance at 1943 and closing at 1963. If the rally in US tech stocks can hold and the Yen can shield its fall from grace, expect more good times for the KOSPI.

 

KOSPI: Back In Play - kospi


IS GOOD DATA BAD FOR THE YEN?

Takeaway: If improving economic data helps get the LDP elected to an Upper House majority come July, it’s ultimately structurally bearish for the yen.

SUMMARY BULLETS:

 

  • As it relates to our structural bear case on the Japanese yen, we continue to view marginal improvement in Japanese growth data over the intermediate term as an ultimately bearish factor for the yen on a TAIL duration, as it helps strengthen the LDP campaign ahead of the JUL Upper House elections. Specifically, total LDP control of Japan’s bicameral legislature will give the party that brought us “Abenomics” a free pass to enact any fiscal Policies To Inflate they feel entitled to in the event the Japanese economy fails to achieve their +3% nominal GDP growth targets.
  • Moreover, with control over both houses of the Diet, they’ll be able revise the BOJ’s charter to the extent Kuroda’s team fails to deliver the +2% inflation it has repeatedly promised to help produce. As a reminder, Japan’s YoY CPI actually slowed -20bps in MAR to -0.9%, so there’s a lot of hay to bale on both the growth and inflation fronts from here.
  • We reiterate our view that Japanese policy is set to remain decidedly dovish for the foreseeable future. Much like the mid-to-late 1990s, the growing rift between US and Japanese policy is set to perpetuate sustainable strength on USD/JPY cross over the long-term TAIL. Our call for an improving US economy  – something consensus simply would not agree with even as recently as one month ago – continues to play out in spades. That only insulates our call for the aforementioned policy divergence.
  • Our refreshed immediate-term risk range on the USD/JPY cross is included in the chart below. Simply put, we think now is a great spot to add to your short yen/long Nikkei exposure.

 

The past 24 hours produced some pretty decent MAR/APR economic data out of Japan – arguably the best batch of growth data we’ve seen in roughly a year. Industrial Production, Overall Household Spending, Retail Sales and Housing Starts all accelerated in MAR, while the Manufacturing PMI posted an acceleration in APR. Additionally, Japan’s Unemployment Rate ticked down in MAR:

 

  • MAR Industrial Production: -7.3% YoY from -10.5% prior;
  • MAR Overall Household Spending: +5.2% YoY from +0.8% prior (fastest YoY gain since FEB ’04);
  • MAR Retail Sales: -0.3% YoY from -2.2% prior;
  • MAR Housing Starts: +7.3% YoY from +3% prior;
  • APR Manufacturing PMI: 51.1 from 50.4 prior; and
  • MAR Unemployment Rate SA: 4.1% from 4.3% prior.

 

IS GOOD DATA BAD FOR THE YEN? - 1

 

IS GOOD DATA BAD FOR THE YEN? - 2

 

IS GOOD DATA BAD FOR THE YEN? - 3

 

While some of the aforementioned YoY growth numbers were far less than buoyant from an absolute perspective, the 2nd derivative deltas (i.e. what matters in macro) all moved in the right direction. While we still don’t buy into the consensus view among mainstream economists that monetary Policies To Inflate as causal to sustainable economic growth, we won’t blindly deny Japan this cyclical opportunity to confirm an escape from the country’s third recession in five years.

 

As it relates to our structural bear case on the Japanese yen, we continue to view marginal improvement in Japanese growth data over the intermediate term as an ultimately bearish factor for the yen on a TAIL duration, as it helps strengthen the LDP campaign ahead of the JUL Upper House elections. Specifically, total LDP control of Japan’s bicameral legislature will give the party that brought us “Abenomics” a free pass to enact any fiscal Policies To Inflate they feel entitled to in the event the Japanese economy fails to achieve their +3% nominal GDP growth targets.

 

Moreover, with control over both houses of the Diet, they’ll be able revise the BOJ’s charter to the extent Kuroda’s team fails to deliver the +2% inflation it has repeatedly promised to help produce. As a reminder, Japan’s YoY CPI actually slowed -20bps in MAR to -0.9%, so there’s a lot of hay to bale on both the growth and inflation fronts from here.

 

IS GOOD DATA BAD FOR THE YEN? - 4

 

We reiterate our view that Japanese policy is set to remain decidedly dovish for the foreseeable future. Much like the mid-to-late 1990s, the growing rift between US and Japanese policy is set to perpetuate sustainable strength on USD/JPY cross over the long-term TAIL. Our call for an improving US economy  – something consensus simply would not agree with even as recently as one month ago – continues to play out in spades. That only insulates our call for the aforementioned policy divergence.

 

IS GOOD DATA BAD FOR THE YEN? - 5

 

In the interim, however, the USD/JPY cross has indeed backed away hard from the psychologically-important 100 line. This has been driven by repatriation of foreign assets (six consecutive weeks on a net basis) as the yen has approached what appears like historically-favorable rates on a trailing 3-5yr duration.

 

IS GOOD DATA BAD FOR THE YEN? - 6

 

We reiterate our view that consensus – be it Japanese households, Japanese corporations, sell-side actors or buy-side speculators – remain Not Bearish Enough on the Japanese yen from here. That, combined with our thesis as updated above, helps us feel comfortable reiterating our call for yen weakness and Japanese equity market strength with respect to the intermediate-term TREND duration.

 

Our refreshed immediate-term risk range on the USD/JPY cross is included in the chart below. Simply put, we think now is a great spot to add to your short yen/long Nikkei exposure.

 

Darius Dale

Senior Analyst

 

IS GOOD DATA BAD FOR THE YEN? - 7


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HSY Continues Its Indulgent Run

This note was originally published April 25, 2013 at 13:52 in Consumer Staples

HSY reported first quarter earnings this morning. The company is largely on track, growing in all categories across multiple channels, including club, and has good marketing support behind the launch of Brookside (dark chocolate, wellness). Second quarter will be challenged based on tougher comps in a historically weaker quarter. Volume should drive performance in the year in which HSY expects a 12% gain in earnings per share (EPS). We like the story, but would prefer a better entry point - perhaps second quarter concerns and performance provide it.   

 

What we liked:

  • Revenue slightly missed consensus $1.83B vs $1.84B, but up a healthy 5.5% (Volume +5.3%; Price +0.5%; FX -0.3%)
  • EPS of $1.09 beat estimates of $1.04, up 13%, and fiscal year guidance adjusted up to $3.61-$3.65 vs previous $3.56-$3.63 - first quarter guidance increases are rare
  • Gained market share in every category that it competes in
  • Higher dollar sell-through for Easter despite shorter season
  • Gross margin +2.4% in the quarter on lower commodity costs of $35MM and supply chain efficiencies
  • Strong brand support for Brookside
  • Focused on continued expansion to emerging markets (China, Brazil, India, and Eastern Europe)

What we didn’t like:

  • Q2 is historically a weaker quarter and is facing higher tax rate and more difficult comps
  • Valuation, though more easily supported in the case of HSY given its growth profile and categories than for the balance of the staples group

BUD: The Good, The Bad & The Ugly

This note was originally published April 30, 2013 at 09:39 in Consumer Staples

BUD reported first quarter  earnings per share (EPS) this morning and ABI BB is currently down about 3% in European trading – volume was weak across the board and volume guidance was soft relative to expectations.



What we liked:

  • Beat on EPS ($1.16 versus $0.98 consensus), but entirely due to below the line items (tax rate, lower interest expense year on year)
  • Pricing remained robust leading to constant currency organic revenue growth of +1.5% against a reasonably difficult comparison (Q2 comps ease, Q3 and Q4 stiffen) despite a decline in volume

What we didn’t like:

  • Volume softness across multiple regions save for Asia Pacific with organic volume declining 4.1% against the most difficult comparison of the year
  • Market share decline in the U.S. (0.5%)
  • Lack of operating leverage (unsurprising, given volume declines) as constant currency EBIT grew only 0.2% on constant currency revenue growth of +1.5%
  • Gross margin declined 1.33% against the most difficult comparison of the year
  • Cautious volume commentary on Brazil (industry flat to down low-single versus prior view of low to mid-single digit growth)

Stepping back for a moment and looking at BUD within the context of the broader consumer staples group, we continue to struggle to find names that we are comfortable with over almost any duration given what we see as the currently stretched state of valuations.  With BUD, we have good visibility on double digit EPS growth driven by continued strong pricing, merger synergies (eventually) and below the line items - even factoring in continued volume weakness.  The company’s FCF yield (7%) remains attractive relative to the group.  Based on that context, we are going to keep BUD on our preferred list.  We expect a couple of European sell-side downgrades, just because that is how those analysts generally roll, but we think BUD continues to make sense once the impact of this quarter shakes out.


HOT REPORT CARD

Takeaway: HOT - we like it

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 - Despite selling 4 assets YTD and some FX headwinds, HOT slightly raised guidance on its core business.  Bal Harbour sales greatly exceeded expectations.  HOT maintains that it will return excess cash to shareholders and that debt levels will not be reduced further

 

HOT REPORT CARD - h34

 

 

US LODGING OUTLOOK

  • BETTER:  Customers and developers are confident.  HOT remains upbeat on the US economy. Sequester has not had an impact given it's less 2% of its business.  HOT expects Q2 and 2013 US REVPAR to be in the high end of its 5-7% guidance range.
  • PREVIOUSLY: "Business activity continues to rise but with very few new build hotels coming on stream. So occupancies remain at near peak levels. If the U.S. economy continues on this trajectory, the basic laws of supply and demand suggest that we'll see strong growth in room rates for the next few years."

CORPORATE BUSINESS

  • SAME:  Transient rates are up over 5%.  Group business continued to pace in the mid-single digits.  
  • PREVIOUSLY: "Corporate and retail transient momentum is strong. Rooms sold in opaque channels are declining improving rate realization. Group pace is tracking in the mid-single digits for the year.  Group business in the cycle has come back slowly but steadily and companies remain careful about growing their cost base." 

LATIN AMERICA/CENTRAL AMERICA

  • SAME:  1Q was similar to 4Q.  Mexico was strong (+10% REVPAR) but Argentina woes continue (-15% REVPAR).  Local inflation has significantly slowed travel into Argentina.  HOT expects Latin America to remain challenged in the near-term due to Argentina.
  • PREVIOUSLY:  "Business travel in Mexico is up, and American leisure travel is coming back. We expect Mexico to be the engine of Latin American growth for us in 2013. At the other end of the spectrum is Argentina, where we have two large owned hotels. Argentina REVPAR is declining while local inflation hits 25%, squeezing our margins. The inflation devaluation gap is hurting Argentina's competitiveness, and hitting exports and travel. This is only likely to get worse until the devaluation resets the equation. Brazil hit a soft spot as China slowed, but is now recovering."

CHINA

  • WORSE:  REVPAR was up 5.4% (local currency), an acceleration from flat growth in Q4; Beijing was particularly soft, given its government exposure.  Southern China 1Q REVPAR was up 10%.  Q1 results in-line with its long-term outlook on China.  HOT expects China REVPAR to grow in the middle of the 5-7% guidance range for Q2 and FY 2013 from prior guidance of being at the high end of that range. 
  • PREVIOUSLY:  "With that behind us, we're seeing demand pick up as government activity starts to resume and business returns to normal....In January, Chinese REVPAR was up 6%. The transition is still ongoing with significant meetings coming up in March when the new leadership formally takes over at multiple levels and new policies are announced. As such we expect the rate of growth to pick up as the year progresses and year-over-year comparisons also become easier."

EUROPE 

  • SAME:  Q1 REVPAR was soft (-1.3% in local currency), largely due to weakness in London, suggesting possible oversupply post Olympics.  Ex London, Europe was flat.  Southern Europe saw growth.  Groups are smaller and booking later.  1Q is not really a material quarter for Europe to its tough to extrapolate trends. HOT continues to expect Europe to exhibit modest (2-3%) REVPAR growth in Q2, but below its 5-7% worldwide guidance range.
  • PREVIOUSLY:  "Europe remained at a stalemate during 2012 and we're not expecting much different in 2013, even though southern European bond spreads suggest rising confidence."

SG&A

  • BETTER:  SG&A was 6% lower in 1Q.  They only spent $4MM of the $10MM severance costs guided for Q1. Higher costs are expected for the rest of the year.  HOT maintained its +3-5% SG&A guidance.
  • PREVIOUSLY: "In Q4 and into Q1, we have been making additional adjustments, incurring some severance cost of approximately $9 million in Q4 and potentially another $10 million in Q1. These costs are included in our SG&A growth estimate of 3% to 5% for 2013."

TIMESHARE

  • BETTER:  Vacation ownership is expected to generate ~$175MM in cash flow in FY2013 excluding Bal Harbour, up from prior guidance of $150MM for 2013. 
  • PREVIOUSLY: "In the last four years, we've generated almost $800 million in cash from the timeshare business, expect to do another $150 million to $200 million this year. So, we would have $1 billion in cash coming out of our timeshare business over the last five years. So we're running that business more for cash than earnings growth, and that has worked very well for us." 

BAL HARBOUR

  • BETTER:  HOT raised its Bal Harbour cash flow forecast from $100MM to $150MM for FY2013. 86% of the residences have been sold and only 40 units remain.  HOT expects to completely sell out by the end of the year.
  • PREVIOUSLY:  "Bal Harbour, $460 million in cash last year, more cash this year. That's gone from being a place where we were putting money in to finish the project to significant amounts of cash coming out of it. That'll all be done this year in 2013, we hope to finish, sell out this year."

VACATION OWNERSHIP CONTRACTS

  • SAME:  Originated contract sales of vacation ownership intervals and the number of contracts signed were flat compared to 2012.
  • PREVIOUSLY: "Our Vacation Ownership business, we're assuming that we will maintain a flat business"

 


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