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MAY ON TRACK FOR CLOSE TO 20% GROWTH IN MACAU

So far so good on our 20% growth forecast for May in Macau. Here is some of the math behind it.

 

 

CALL TO ACTION

Macau stocks may rebound as May GGR continues to display acceleration from recent months.  The 20% YoY growth forecast is based on our quantitative model with a little special sauce context thrown in, but it’s mostly the math.  We believe that level of growth exceeds most sell side projections and investor sentiment.  WYNN remains our favorite.

 

THE SETUP

We’ve been consistent with our belief that May growth will accelerate from March/April and allay the doom and gloom VIP fears.  Not to say there aren’t some liquidity issues in the junket system.  We’re probably seeing that with MPEL – rolling chip volume fell 20%+ in April and market share is down again here in May.  However, the flow through of some side betting into the legitimate system has probably and certainly could provide the VIP cushion to stem some of the pressure.  Mass growth, on the other hand, needs no push – volumes are terrific.

 

So how do we handicap May?  If we assume year to date volumes continue and seasonally adjust May along with an extra Saturday, growth should approximate 20% assuming a normal hold percentage.  Looking at it another way, May faces one of the easiest comps of the year as can be seen below.  Moreover, May’s 2 year and average comp (average of 1 and 2 yr) are the easiest of the year.  Given the inherent volatility of this business, looking at last year’s comp is not enough analysis.

 

MAY ON TRACK FOR CLOSE TO 20% GROWTH IN MACAU - a

 

We expect the tenor and investor sentiment around the Macau gaming operators to improve as senior management teams, sell-side analysts and investors converge on Macau for G2E Asia at Venetian Macao on May 20-22.

 

Month to date, average daily table revenues are 16% above the comparable period of last year.  Going forward, the comps appear to ease as can be seen below.  While this week’s comp looks tough at 22%, that number comped off of a -6% base.  Week 4 is easy on a 1 year basis and moderate on a 2 yr basis.  Based on these numbers, it appears that growth should accelerate in the back half of May.

 

MAY ON TRACK FOR CLOSE TO 20% GROWTH IN MACAU - Chart 2 5 12 2014 6 09 04 PM

 

CONCLUSION

The Macau gaming stocks have bounced off the recent lows achieved on 4/29 (see our note “WE’VE BEEN PLACEHOLDERED”) but they remain well off their highs.  If we’re right on May, all the Macau stocks should do well.  We’re partial to WYNN because we think they have a unique ability to garner more share, particularly on the VIP side if they are willing to improve their junket offering – specifically in the credit area where Wynn Macau advances commissions only on a 15-30 day basis versus the competition at 2-4 months.


REMINDER: JCP/KSS Real Estate and Survey Call Today at 1pm ET

Takeaway: REMINDER: We will be hosting a call titled KSS Short: Why JCP is the Risk (And Opportunity) on today, Tuesday May 13 at 1pm ET.

We will be hosting a call titled KSS Short: Why JCP is the Risk (And Opportunity) on Tuesday, May 13th at 1:00pm ET to discuss our current short thesis on KSS. We will detail some of the underappreciated dynamics that currently exist between Kohl's and JCP.   

 

REMINDER: JCP/KSS Real Estate and Survey Call Today at 1pm ET - HE RET KSS JCP alt

 

HIGHLIGHTS WILL INCLUDE:   

 

A) Results of our latest consumer survey on department stores
B) Explore incremental trends in e-commerce
C) A deep dive into each company's real estate profile examining where the greatest risk/opportunity exists for store closure and subsequent share shifts

 

 

SPECIFIC TOPICS WE'LL EXPLORE:  

  • One of the biggest risks to being short KSS is JCP shuttering a third of its stores
    • What is the typical market for a JCP store closure (based on historical precedents)?
    • How many more of those markets exist?
    • What does KSS overlap look like in these markets?
    • What is the revenue opportunity for KSS?
  • Consumer Survey updates on the rate at which sales are coming back to JCP, and which retailers are winning/losing
  • Visitation trends at each department store and how they are changing sequentially
  • Analysis of recent e-commerce traffic on an absolute level for KSS and JCP, but also relative to competitors like M, JWN, DDS, TGT, SHLD and others
  • Why we think that dot.com is a risk for KSS on a longer term basis

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 294741#
  • Materials: CLICK HERE

Please contact  for more information.

 


BOOKING RESEARCH ALPHA IN INDIA

Takeaway: We are content to “book” the gain in India here, as we now see risk/reward favoring short-sellers in the near term (~1-3M).

The cyclical component of our thesis (i.e. improving GIP fundamentals + tightening fiscal and current account balances + speculation around political reform into the 2014 general elections = buy India) has as played out in spades in both the data and the early exit polling results.

 

BOOKING RESEARCH ALPHA IN INDIA - INDIA

 

BOOKING RESEARCH ALPHA IN INDIA - BUDGET BALANCE


BOOKING RESEARCH ALPHA IN INDIA - CURRENT ACCOUNT BALANCE

 

BOOKING RESEARCH ALPHA IN INDIA - 1

 

BOOKING RESEARCH ALPHA IN INDIA - 2

 

Indian capital and currency markets have performed quite remarkably since we outlined our bullish thesis back on OCT 29th of last year. Specifically, the EPI etf has appreciated +21.6% since then, which compares to a sample mean of -1.4% across the 24 country-level EM etfs we track and good for the second-best performance over this duration. Moreover, the INR has appreciated +3.2% vs. the USD since then, which compares to a sample mean of -2.4% across the 21 currencies we track across Asia and Latin America and good for the third-best performance over this duration. Going back to the EPI etf, this fund has ripped +19.2% in the last ~3M alone (note: we reiterated our bullish bias in a detailed note on JAN 22) – implying some degree of investors crowding into this trade.

 

BOOKING RESEARCH ALPHA IN INDIA - EM Divergence Monitor

 

BOOKING RESEARCH ALPHA IN INDIA - FX

 

Given the recent performance, the risk that election results disappoint and lack of near-term positive catalysts, we think astute investors will look to book gains in Indian capital markets over the next ~1-3M. A diminished macroeconomic tailwind is cause for concern in the summer months as our GIP model has Indian real GDP growth slowing in the third quarter.

 

Key question: How much better is Indian economic growth going to get in the near term if consumer price inflation accelerates in 2Q?

 

BOOKING RESEARCH ALPHA IN INDIA - COMPOSITE PMI

 

BOOKING RESEARCH ALPHA IN INDIA - CPI

 

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Additionally, there’s a fair degree of open-the-envelope risk on Friday’s final vote tally, given India’s shaky history with exit polling. Specifically, the SENSEX dropped -11% in a single day in 2004 when the BJP coalition’s share was found to have been overstated by 70 seats in exit polls and the index rallied +17% in a single day in 2009 when the BJP coalition’s share was found to have been overstated by 30 seats in exit polls. Thinking longer-term, that’s an [potential] correction we’d want to buy – assuming Modi and the BJP capture enough of a ruling mandate to implement noteworthy economic reforms.

 

We continue to think what Dr. Rajan is doing on the monetary policy front is equally as critical – if not more critical – to structural improvement in India’s GIP fundamentals. While recent political rhetoric suggests that both his job and the RBI’s long-term policy guidance are safe, we can’t rule out investors speculating on an attack on the central bank’s sovereignty given that Dr. Rajan was appointed by the [likely] incumbent Congress Party and that his hawkish bias conflicts with Modi’s emphasis on promoting growth (albeit via proper economic management). That would be bad for the rupee and, historically, what’s bad for the rupee is bad for India (i.e. Quad #3 on our GIP model) because of the country’s dependence on foreign capital.

 

Feel free to ping us with any follow-up questions. Have a wonderful evening,

 

DD

 

Darius Dale

Associate: Macro Team


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Poll of the Day Recap: 81% Say Yes, Central Planners Are Destroying America

Takeaway: 81% said YES; 19% NO.

Bestselling, “Death of Money” author Jim Rickards discussed with Keith McCullough on HedgeyeTV last week how central bankers are destroying America.

 

We wanted to know if you agreed with Rickards, so we asked in today’s poll: Are central planners destroying America?

 

Poll of the Day Recap: 81% Say Yes, Central Planners Are Destroying America - Capitol in Ruins

 

At the time of this post, a clear 81% majority said YES; 19% NO.

 

These YES voters firmly (and even passionately) explained their choice:

 

  • “Fiscal policy hasn’t been and still isn’t able to induce sufficient real growth, so central bankers are committed to inducing sufficient inflation to attain and maintain a sustainable trend of deficit spending. Current monetary policy of currency devaluation robs the majority of their wealth given their insufficient allocation for greater inflation and understanding of sudden (market sentiment change)/(loss of confidence in the dollar).”

 

  • “Yes for several reasons, but mainly they have failed at creating the inflation they wanted and instead are getting the inflation you don't want (low wages, higher food prices). The low USD valuation is having long-term effects not just on purchasing power, but on economy/employment because of weak consumer purchasing power. Overall, I agree with Rickards that this is going to cost us our position as world currency leader. And, when that shoe falls, I hope not to be in the country or at least in Oakland, CA.”

 

  • “A country's currency is the best way to measure its economic strength. But our Fed is deliberately shooting our country on the foot. WTF!!! “

 

Of those who explained why they voted NO, one person said to “Buck up and play the game,” while another said, “Don't be consensus.”

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LO and RAI Off To The Races, Again Takeout Rumors

The tobacco rumor mill stirred up late yesterday with the London Times reporting that BAT could buy its remaining share of RAI (58%) and/or that RAI is looking to buy LO.  The Times mentioned that BAT sought out Deutsche Bank as an advisor for a possible deal; we’ll note here that these are not “new” rumors as BAT has been exploring potential deals since last year, and since mid-March of this year the rumor mill on a RAI-LO deal swirled heavily. 

 

Two weeks ago this same rumor “excitement” contributed to a +8.5% w/w move in LO’s stock price, however last week was apparently “rumor off” week and the stock was basically flat.

 

We maintain that this rumor flow continues to be a great tailwind for our Best Idea Long Call Lorillard that we presented on March 4 of this year, with a longer term price target of $80/share.

 

We maintain that a hypothetical deal (especially an imminent one) between RAI and LO is challenged:

  • Our main flag is that a combined RAI + LO would own ~ 67% of U.S. menthol market, which we believe should trigger anti-trust flags.
  • Big tobacco is already a highly concentrated industry in the U.S. across the big three – MO has a leading ~51% of market share; a combined RAI + LO would equate to ~ 42% share.   

RAI could look to divest such menthol brands as Kool, Winston and Salem (~5% total market share), which could serve to change the consideration of the FTC/DOJ.

 

We’re not surprised to hear rumors that LO is a take-out target. Underlining our Best Idea Long Call on Lorillard in early March was the strength of its portfolio:

  • Leading share and profitability of its core menthol business,
  • Our belief in the limited menthol regulatory risk over the longer term (substantiated by a Washington, D.C. tobacco expert), and
  • Upside growth in its blu e-cigarette business that commands leading share in the U.S.

As part of the Best Idea’s thesis we did not consider a RAI + LO deal. We also think the recent announcement that Susan Cameron will replace Daan Delen on May 1 could also be fueling some speculation that she wants to come out of the box “strong” – which is drumming up rumors about this deal. 

 

Below we’ve outlined our TREND duration over the intermediate term (3 month); appreciation to our $80/share target would be +35% higher than today’s price.

 

LO and RAI Off To The Races, Again Takeout Rumors - lo lo new

 

Howard Penney

Managing Director

 

Matt Hedrick

Associate

 

Fred Masotta

Analyst



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