LEISURE LETTER (06/27/2014)

Tickers: 27:HK, CZR, MPEL, PENN, WYNN

EVENTS:

  • Friday, June 27 Las Vegas May revenues

COMPANY NEWS

27:HK / Galaxy  – Lui Che Woo, founder and chairman of Galaxy, said he expects company net profits to grow in 2015 by as much as 50% YoY thanks to the opening of Phase 2 of Galaxy Macau.

Takeaway: Phase 2 will benefit Galaxy more than some investors think.  500 more tables are coming.

 

CZR – Caesars Entertainment announced (via WARN Act letters which give employees at least 60 days' notice of a planned business closure) it will close the Showboat Atlantic City hotel and casino. The closure of the property is not unexpected as CZR CEO Gary Loveman previously commented that some additional gambling facilities in Atlantic City would need to close.  

Takeaway: Atlantic City missed its opportunity to be relevant a long time ago.  The expansion of gaming across the Mid-Atlantic and Northeast has only served to exacerbate Atlantic City's woes... Unfortunately, New Jersey Governor Christie's dream for an Atlantic City turnaround might simply be too optimistic and not based on economic reality.

 

Interlot – signed a four-year contract extension with the New Hampshire Lottery Commission carrying service through June 30, 2020. Intralot will continue to provide its lottery gaming system for the operation of terminal-based games, the management of instant games and support of the retailer network. During fiscal year 2013, New Hampshire Lottery sales were more than US$280 million while also awarding more than US$174.4 million in prizes. 

Takeaway:Another win for Interlot!

 

MPEL – is selling 100% of the issued shares of Dreamworld Leisure Ltd to Ban Kea, a Cambodian citizen, for US$500,000. The purchaser is a family relative of Entertainment Gaming’s partner in Cambodia. The sale includes all assets of Dreamworld Leisure with the exception of all electronic gaming machines, and prohibits any use of the Dreamworld brand name by the buyer. The company owns and operates Dreamworld Pailin, a casino with 26 gaming tables in the Pailin province of northwestern Cambodia, near the Thailand border. It also operates Dreamworld Poipet, a standalone slot hall in an existing casino in Poipet. The move comes as the government in Cambodia is in the process of amending its gaming laws in an effort to draw major casino operators.

Takeaway: Small disposal for MPEL

 

PENN - Argosy Sioux City will be allowed to stay open through July 10, the date the Polk County District Court scheduled a hearing to consider PENN's arguments against the previous Iowa Racing and Gaming Commission order to cease operations on July 1.

Takeaway: A near term win.  Remember, PENN's guidance assumes Sioux City ceases operations on June 30. 

 

WYNN – (GGRAsia) Tokyo’s high court rejected Kazuo Okada’s appeal against a lower court’s dismissal of a defamation lawsuit he filed versus WYNN.  In a statement, the High Court reiterated the case should not be handled by a Japanese court.

Takeaway: As expected and not surprising.

INDUSTRY NEWS

Korean Tensions – North Korea fired three short-range rocket yesterday into the waters off its east coast. The launch was most likely a routine test-firing, but government officials also believe the launch/test firing could also be meant to stoke tensions with Seoul (South Korea).  News reports indicated the rockets flew about 190 kilometers (120 miles) before harmlessly landing in the water. The rockets were fired from North Korea's eastern port city of Wonsan.

Takeaway: The escalating tensions between North and South Korea as well as on going military exercises near the South Korean territorial islands may service as a near term tourism headwind.

 

Macau Traffic (Jornal Tribuna de Macau) Macau has twice as many tourist coaches as buses - 1,698 tourist coaches were on the road at the end of April, including those used as shuttles as compared to 801 city buses deployed on scheduled services. Government policy is to curb any increase in the number of tourist coaches, and to have them used more efficiently, in view of the traffic congestion they cause.

Takeaway: We witnessed the significantly worse traffic congestion during our recent trip and all the more reason to get the Light Rail Transit system operational.

LEISURE LETTER (06/27/2014) - macau coach

 

Hotel Portfolio Transaction – Katara Hospitality, the Qatar-based global owner, developer and operator of iconic hotels, announced the acquisition of five properties in key European cities from a private investor including: the InterContinental Carlton Cannes, the InterContinental Amstel Amsterdam, the InterContinental Madrid, the InterContinental Frankfurt, and the lease hold interest in the InterContinental De La Ville Rome. The acquisition brings Katara Hospitality’s global portfolio to 32 hotels operational or under development, topping its long-established goal of 30 properties by 2016. Katara now has properties or projects in 14 countries, with a total of 7,103 rooms operational or under development.

Takeaway: Continued demand for high quality lodging assets by sovereign wealth funds.

 

Sales of German agencies fall 3.6% in May (Hostelur) 

German agencies saw its sales fall 3.6% in May.  Sales of tourism products (hotels and packages) fell 8.3% in May, a stark contrast to April's gain of 14%.

Takeaway: Leisure business in Germany continues to be choppy.

 

Danube Cruises affected by low water levels (Cruise Critic)

At least 20 river cruises have ben affected by lower than normal water levels on the Danube and Elbe rivers.  Riviera Travel and Viking Cruises are two of the affected parties.

MACRO

Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro & Financial teams are 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.


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more