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    MARKET EDGES

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

TICKERS: MPEL, MGM, 2282.HK, WYNN, BEE, CHH, BYD, HLT, CCL, RCL

EVENTS TO WATCH:  UPCOMING EARNINGS / CONFERENCES / RELEASES 

Monday, April 7

  • Las Vegas - National Association of Broadcasters six-day convention and trade show with more than 90,000 people from 156 countries attending. 

Tuesday-Thursday, April 8-10

  • Mid-America Gaming Congress (Columbus, OH)

Wednesday, April 9

  • SHO Investor Day

Thursday, April 10

  • HST Investor Day

COMPANY NEWS

BYD - lost its request in the Kansas Court of Tax Appeals to reassess the 2012 appraised value of Kansas Star Casino.  BYD says the casino has a fair value of $64.3 million but the court values the casino at $80.5 million vs the $95.8 million claimed by Sumner County.  Both BYD and the county have 30 days to appeal the tax court’s decision. 

TAKEAWAY:  We expect BYD to appeal.  We will ask management about this issue this week in our meeting.

MPEL - (Syndey Morning Herald)  MPEL is in talks with several Japanese corporations, apparently including some with operations in Australia, about joining forces to build a $US5 billion ($5.4bn) casino complex in Japan in time for the 2020 Tokyo Olympics.  MPEL is also considering IR opportunities in South Korea and Vietnam. Both countries currently allow foreigner’s only casino gambling.

TAKEAWAY: Lawrence Ho attempting to build a bigger and more vast gaming empire than his very successful father.

MGM China (2282.HK) - disclosed via proxy a resolution to grant a general mandate to the Directors to repurchase shares of the Company not exceeding 10% of the issued share capital at the date of passing this resolution.

TAKEAWAY: Interesting as Sands China Limited announced a similar shareholder resolution last week. 

WYNN - The president of the Massachusetts AFL-CIO, who as a state senator played a key role in shaping the expanded gaming law, is calling on Wynn Resorts to follow in the footsteps of Mohegan Sun, its competitor for the lucrative Boston-area casino license, and sign a pledge to stay neutral in any future elections that would decide what unions represent workers in its casinos.  The state gaming law calls on the Gaming Commission to base its license award decisions in part on “whether the applicant has included detailed plans for assuring labor harmony during all phases of the construction, reconstruction, renovation, development and operation of the gaming establishment.”

TAKEAWAY: MA is a very blue state.

BEE -  announced that it completed the redemption of its 8.50% Series A Cumulative Redeemable Preferred Stock.  The redemption of the Series A Preferred Shares will eliminate approximately $6.5 million in dividend payments for the remainder of 2014 and $8.8 million of dividend payments on an annual basis.

TAKEAWAY: Another positive step in cleaning up and resetting the Balance Sheet.

CHH  - announced a first-ever development incentive for new construction Comfort Inn and Comfort Suites hotels to further fuel growth of the Comfort portfolio.  The new construction development incentive reduces fees totaling 3 years of royalty value on approved Comfort Inn and Comfort Suites projects.

TAKEAWAY: Just what the industry needs, incentives to build new supply...could this be 1 all over again?

HLT -  “Take Flight” the brand enhancement program which includes changes to existing Homewood Suites prototypes recently introduced its Gen 9.2 prototype, featuring a higher percentage of one-room studio suites. These one-room suites make the hotels more adaptable to urban and high barrier-to-entry markets.  Homewood Suites represents more than 330 hotels open in three countries and territories and currently has more than 100 in the pipeline, representing more than 12,000 rooms.

TAKEAWAY: A brand that has struggled but with good potential, so we are anxious to see the upgrades to a Gen 9.2 prototype.

CCL -  2 ship incidents Cruise Critic

  • Three Carnival Pride sailings have had their itineraries cut short by one port to account for an electrical transformer malfunction.  According to PR, all safety and hotel systems are operating normally and repairs are taking place onboard during the scheduled sailings.  They're slated for completion by April 19. 
  • For the second time in six weeks, a broken propeller shaft seal is hampering a P&O Cruise ship.  P&O's Oceana will be delayed for three days in Barcelona while repairs are made to the ship.  In late February, P&O's Oriana suffered a broken propeller shaft seal that slowed the ship and ultimately forced the line to cut short a cruise by three days to make repairs.

TAKEAWAY:  Embarrassing.  P&O news is particularly disconcerting as it competes in an increasingly competitive UK/Med premium market.

RCL -  Celebrity Cruises set to launch new ad campaign Travel Weekly

Celebrity Cruises will launch a new series of ads that seeks to make a more emotional connection to potential cruisers.  The ads will supplement rather than replace the long-running “Modern Luxury” theme that Celebrity has used in its marketing.  Kauffman said Celebrity has budgeted $16 million for the campaign, which also includes trade and consumer magazine ads and online and social media components.

TAKEAWAY:  Higher marketing expenses for RCL.

INDUSTRY NEWS           

Chinese Travel Advisory - the Consulate General of the People’s Republic of China in Kuching, Malaysia, has issued a safety alert for Chinese tourists following the kidnapping of a Chinese national in Semporna, Sabah, last Thursday. The safety warning was also delivered by the Tourism Crisis Management Office in Macau.

Pennsylvania Casinos Smoke Free - Two Pennsylvania legislators are pushing a bill that would prohibit smoking throughout the casino floor as well as at several other locations now exempt from the state ban.  Nationwide, 20 states require state-regulated casinos to be smoke free. Unfortunately, the three with the most gambling revenue — Nevada, Pennsylvania and New Jersey — are not among them. Pennsylvania mandates that 50 percent of the casino floor be nonsmoking, but smoke ignores the boundaries.

TAKEAWAY: Non-smoking seems like an inevitable outcome.

Riverboat Re-Sale Value – the former Casino Queen Riverboat, a  the 411-foot-long, four-story side-wheeler, which was sitting idle for more than five years was sold at auction last week for $600,000. The riverboat made its maiden voyage on the Mississippi River on June 23, 1993

TAKEAWAY: GLPI take note -- Argosy Sioux City could be next.

 

MACRO

World Bank tempers Asian Growth Outlook - Developing East Asian economies will grow slower than forecast this year as China’s expansion moderates and political upheaval weighs on Thailand's outlook -- risks include a slower-than-expected recovery in advanced economies, a rise in global interest rates and increased volatility in commodity prices because of recent geopolitical tensions in eastern Europe.

TAKEAWAY: It used to be that when the U.S. caught a cold, the rest of the World caught pneumonia.  However, today when China catches a cold, the rest of SE Asia catches the plague. 

Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is turning decidedly less positive.

TAKEAWAY:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.