LEISURE LETTER (09/29/2014)

Tickers: MGM, MPEL, PENN, WYNN, H, SGMS, CCL, NCLH, RCL

EVENTS

  • Sept 29 - Oct 2: G2E Las Vegas
  • Tuesday: Sept 30: Frontline video on Macau 
  • Tuesday, Sept 30:
    • JPM Securities: FCH, AHT
    • DB Leveraged Finance: WYNN, MGM, CHH, FCH, RHP
    • TAG Fall Consumer Conf: LVS, WYN, MTN
  • Wednesday: Oct 1
    • DB Leveraged Finance: PENN, BYD, SGMS
    • TAG Fall Consumer Conf: LVS, WYN

COMPANY NEWS

MGM & 2282:HK (GGRAsia) Hundreds of MGM China Holdings Ltd casino employees on Sunday protested for higher salaries and changes to the company’s bonus policies. The protest was officially called by a group of MGM China employees and was supported by labor activist group Forefront of the Macao Gaming. Organizers said about 500 people joined the demonstration, while the police put the figure at 240. The workers demanded equal pay for equal work and a full smoking ban inside casinos. Protest organizers said that if their demands were not met, they would consider organizing new demonstrations during the upcoming National Day “Golden Week” holiday, starting on October 1.

Takeaway:  Analysts have raised labor forecasts but are the high enough? 

MPEL – Melco Crown (Philippines) Resorts Corp on Monday said there is not yet any opening date for its casino resort City of Dreams Manila. “Please be informed that aside from previous disclosures to the exchange stating that City of Dreams Manila is set to open this year, there is nothing fixed or concrete to report at this time,” Melco Crown Philippines said in a filing to the Philippine Stock Exchange. Melco Crown Philippines said in Monday’s filing it would disclose updates on the opening date of City of Dreams Manila “when a material event occurs”. The US$1.2-billion casino resort will feature up to approximately 365 gaming tables, 1,680 slot machines and 1,680 electronic table games upon opening. 

Takeaway: Back in July, we warned investors we were hearing the opening would be delayed until December. 

PENN & GLPI– Polk County District Court Judge Eliza Ovrom heard final oral arguments from (PENN) Argosy Sioux Fall's Attorney Mark Weinhardt and other attorneys in the complex, multi-party case. The Argosy wants Ovrom to overturn a series of actions by the Iowa Racing and Gaming Commission, restore the gambling boat's state license and take away the license the Argosy claims was improperly awarded to the Hard Rock Hotel & Casino Sioux City.  Iowa Assistant Attorney General John Lundquist, who represented the IRGC, argued while Murray was given multiple chances to change events, that doesn't apply to the Argosy case, he said. "The law doesn't give (Argosy) the opportunity to keep coming back to this court and asking for relief and asking for relief until it gets the answer that it wants," Lundquist told Ovrom.

Takeaway: Argosy trying to regain its license despite testifying it failed to renew its licensing agreement in a timely manner. 

WYNN – suing prominent short-seller Jim Chanos for slander. Mr. Wynn and his company are suing Mr Chanos, founder of New York hedge fund Kynikos Associates LP, in the United States and the plaintiffs allege that sometime in April Mr. Chanos falsely accused Mr. Wynn and his company of violating the US Foreign Corrupt Practices Act, and are claiming an unspecified amount of damages.

Takeaway: If nothing stuck with Fairfax Financial, it's not likely to stick here.  

 

BEL:PM – announced the unitary price for the 3.26 billion shares in Premium Leisure Corp that Belle is selling at PHP1.65/sahre (US$0.02). Belle agreed to sell up to 490 million additional shares of Premium Leisure for the over-allotment option. The overall shares equal to almost 12% of Premium Leisure’s outstanding shares. The sale will reduce Belle’s stake in the firm to slightly above 77%.

H – has outlined a series of ambitious targets for 2020 to reduce water and energy use and boost sustainability in other areas, with the aim of becoming a blueprint for the sector.  The targets include cutting energy use and greenhouse gas emissions per square meter by 25%, reducing water use per guest night by 25-30% and recycle waste sent to landfills by a minimum of 40%. The company also pledged to source more than 50% of its seafood sustainably, use LEED or an equivalent certification for new projects and ask suppliers to have sustainability policies in place by 2017.

Takeaway: Going green to make green

H – agreed to pay $1 million to 98 Boston-area housekeepers who were fired five years ago and replaced by lower-paid, outsourced workers, at the time triggering a backlash that drew national attention -- and a stern scolding from Governor Deval Patrick. The agreement with Local 26 comes as Hyatt is vying to operate a 1,000-room hotel at the expanded Boston Convention & Exhibition Center planned in South Boston. 

Takeaway: Hyatt making nice with the Boston union as a way to secure future growth in the city.

CCL/NCLH – Ebola Fears Prompt Cruise Ships to Cancel West Africa Port Stops (Cruise Critic)

Three cruise lines, Regent Seven Seas, Seabourn and Fred Olsen, have canceled port calls in West Africa, due to the outbreak of Ebola in the region.  Seven Seas Mariner will overnight in Tenerife and call on Lanzarote instead of Dakar, Senegal, on October 17 and 18, on its 21-night Lisbon to Miami cruise. Fred. Olsen has also substituted stops in Dakar and Banjul, Gambia, with longer time in the Canary Islands for its November and December itineraries on Braemar. Seabourn substituted ports in Spain on Sojourn's Barcelona to Cape Town itinerary.

Takeaway:  Itineraries shifting 

 

CCL  Water Spout Causes Emergency Protocol on Costa Fascinosa (Cruise Critic)

Water spout in the Mediterranean caused Costa Fascinosa to list suddenly, causing emergency procedures to go into effect.  A "very limited" number of passengers asked for medical help, the line said, but no serious injuries were reported. The ship's voyage to the Greek Isles is still underway.

 Takeaway:  Minor incident 

CCL – Australians booking with Cunard in 2015 +40% (Seatrade Insider)
Comments from Cunard international development director David Rousham:

  • Australia is now the cruise line’s third largest source market after the UK and the US, with a far higher proportion of first-time Cunard cruisers than any other country.  
  • 61% of Australian guests booked on cruises on Queen Mary 2 this year had been newcomers to the brand, compared to an average of 38% across other nationalities.   
  • 39% of Australians on Queen Victoria had been first-time Cunard customers, more than double the average of 18% for other nations. Onboard Queen Elizabeth this year, newcomers have accounted for 43% of Australian guests, compared to an average of 29% for other nationalities.
  • Demand for world cruises is particularly strong, with Australia ranking as the second largest source market on the cruise line’s three 2014 voyages, representing 28% of guests compared to Britain at 40% and the US at 18%.
  • Fly-cruise program doing well

Takeaway:  Optimistic commentary on Australia but the spotlight will be on whether the UK momentum is sustainable for Cunard.

RCL -  Royal Caribbean International will kick off a five-day WOW Sale Sept. 27 that offers on-board credits up to $200 per stateroom, 50% reduced deposits and combinability with other deals.  New individual and named group bookings made in the US and Canada with required deposit from Sept. 27 through Oct. 1 offer $50 on-board credit per stateroom for cruises up to five nights, $100 on-board credit per stateroom for six- to nine-night sailings and $200 on-board credit per stateroom for cruises 10 nights and longer.  The WOW sale applies to all open Royal Caribbean International sailings, based on availability, except Quantum of the Seas and Anthem of the Seas.

Takeaway:  Another WOW sale

Insider Transaction:

SGMS - CFO Scott Schweinfurth exercised 5,914 options and then surrendered 1,914 shares on September 25, 2014.   

INDUSTRY NEWS

China Tax Cuts – (China Securities Journal) China may announce measures including tax cuts to manage economy with targeted easing approach as 3Q economic growth expected to slow.

Takeaway: Reserve rate and tax cuts, China pursuing all measures to stimulate growth.  Could growth be slower than the 7.5% forecast?

Tokyo Casino Outlook Clouded  (Reuters) Plans to open Japan's first casino in Tokyo before the 2020 Olympics are becoming increasingly unlikely, with developers facing skyrocketing building costs and a city government that no longer considers casino development an economic priority.  Previous Tokyo governors had supported plans for a casino. Current governor Yoichi Masuzoe, who took office in February, however, said in June that pursuing a casino was "not at the top" of his agenda. Tokyo government officials say the governor appears to be overwhelmed by preparations for the 2020 Olympics, and has put the casino plans on the backburner.

Takeaway: Japan is in the stocks...


Protest in Hong Kong – (BBC) On Saturday and Sunday, thousands of pro-democracy protesters are blocking Hong Kong's streets, shutting down the territory's business hub and ignoring appeals to leave. Protesters - a mix of students and supporters of the Occupy Central pro-democracy movement - are angry at Beijing's plans to vet candidates for Hong Kong's 2017 leadership elections. They want a free choice of candidates when they cast their ballots for the chief executive - something Beijing says is out of the question. More than 200 bus routes have been cancelled or diverted; some subway exits in protest areas have been blocked. Several banks have suspended operations in affected areas. 

Takeaway:  The protests were large and further protests are expected during National Day. As a result, officials with the Hong Kong city government canceled the planned October 1st National Day fireworks show.  Could some Hong Kong visitors stay longer in Macau?

MACRO

Macau Unemployment Rate remained stable at 1.7% between June and August.

Takeaway: and most of the "unemployed" are probably making money somewhere...

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.