LEISURE LETTER (10/31/2014) TRICK OR TREAT EDITION

Tickers: MPEL, MAR, WYN

EVENTS

  • Nov 3:
    • BEE Q3 earnings 11 am , pw 37266467
    • SHO Q3 earnings 12n , ID 75906336
  • Nov 4: RHP Q3 earnings 10 am
  • Nov 6:
    • MPEL Q3 earnings 8:30 am , pw MPEL
    • PNK Q3 earnings 10 am , code 27759617
    • BEL Q3 earnings 10 am , ID 12457691

COMPANY NEWS

MPEL(GGRAsia) The Macau government announced it detected an unauthorized smoking area inside City of Dreams casino resort.  MPEL earlier said its operations were compliant with Macau legal requirements.

The Health Bureau said in a statement issued on Wednesday night that the unauthorized smoking area was detected following complaints on the matter.

“On Wednesday (October 29), the Health Bureau and the Gaming Inspection and Coordination Bureau conducted a joint investigation at City of Dreams casino and confirmed that the casino had transformed a non-smoking area into a smoking area without receiving authorization from the Health Bureau,” the statement said.

Takeaway: Just a matter of time until all of Macau gambling is non-smoking - clearly the Health Bureau policies supercede the DICJ.

AC:FP – unveiled a new multi-faceted digital strategy in which it plans to invest €225 million (US$284 million) over the next five years. Calling the “Leading Digital Hospitality” plan the company’s “global response to digital challenges,” Accor said it was designed with three targets in mind — customers, employees and partners — through the pillars of IT infrastructure and data management with an aim to rethink and incorporate digital technology throughout the customer journey, improve the services offered to investor partners and consolidate the Group's distribution market share.

Takeaway: Technology to consumer, the new capex spend.

IGH:LN – Holiday Inn announced it will roll out its Burger Theory restaurant concept in the Americas. Burger Theory will feature a bar-centric rustic design and offer gourmet specialty burgers and craft beer. Burger Theory’s menu will also include salads, flatbreads and dessert. According to Maurice Cooper, vice president of the Holiday Inn brand, Burger Theory is already operating at Atlanta’s Holiday Inn Airport South and will open in several additional Holiday Inn locations later this year. Cooper also explained that Holiday Inn wants to differentiate itself from competitors by offering attractive dinner F&B options to keep guests at the property in the evening.

Takeaway: Who doesn't enjoy a good burger while on the road? Still not enough to fully refresh this tarnished brand (tarnished only in the US).

MAR – announced plans to provide free basic Wi-Fi to all 47 million members of its Marriott Rewards loyalty program when they book directly through Marriott channels such as Marriott.com, Marriott’s mobile app, its toll-free number or directly through a hotel. Beginning January 15, this benefit will make free standard Wi-Fi available across more than 3,800 hotels in the company’s global portfolio. 

Takeaway: Matches the IHG rewards program.

WYN – announced the appointment of Mark Kukulski as president of its management division, Wyndham Hotel Group Management. In this role, effective November 11, Kukulski will be responsible for the execution of all hotel operations for the company’s 46 U.S. managed properties with more than 10,000 guest rooms, including financial management, sales and marketing, guest satisfaction, associate and owner relations and compliance with quality standards.


CCL – announced Gerry Cahill, president and CEO of Carnival Cruise Lines, is retiring, effective November 30, after 20 years of service. Cahill joined Carnival Corporation in 1994 as vice president – finance, and in January 1998 was promoted to senior vice president – finance and chief financial officer.

Takeaway: We wish Mr. Cahill well.  He will be missed as he was a long time friend of investors.

INDUSTRY NEWS

Limit on Macau Live Gaming Tables(GGRAsia) Macau’s Secretary for Economy and Finance, Francis Tam Pak Yuen said that any change to gaming policies would be for the next administration to decide. Macau Chief Executive Fernando Chui Sai On is set to start his second term in office on December 20. Mr Chui is still to name his team of governmental secretaries. It is yet not know if Mr Tam – who has overseen the gaming industry since 1999 – will stay on. The Macau government has imposed a cap that seeks to limit the growth of live dealer table numbers to 3% compound annual expansion until end-2022 from a base of 5,485 tables recorded by the authorities at the end of the fourth quarter in 2012.

Takeaway: Hopefully the new Secretary will also be a friend of the industry. 

E-Cigs Allowed in Macau Casinos (Macau Business Daily) Since October 6 the government has permitted the smoking of conventional cigarettes in casinos only in smoking rooms without gaming facilities or in VIP gaming rooms.

Business Daily quotes a spokesperson for the Health Bureau said,“According to the present law, the use of electronic cigarettes is not banned.”  However, Hing Cheong Hong Tobacco Co Ltd sales manager Sunny Iao also said “We cannot find any place in Macau where it’s possible to buy these cigarettes.”

Takeaway: Smoke 'em if you've got 'em!

 

Macau Package Tourism (Macau Business) The Statistics and Census Service says the number of package tourists from the mainland rose by 11% to 840,000. More package tourists came from Taiwan, but fewer came from South Korea and Hong Kong. Macau had 852,000 hotel guests last month, 1% fewer than a year earlier. The average hotel guest stayed 1.4 nights, 0.1 night more than a year earlier. The average occupancy rate of hotels and guesthouses fell by 2% to 85%.

Takeaway: Decent, not great growth as compared to historical growth.

China's Communist Party Hardline – the Standing Committee of the 12th Chinese People's Political Consultative Conference National Committee said  China's top political advisory body concluded its plenary session in Beijing by expelling a senior Hong Kong lawmaker for remarks against HK's Leung Chun-ying -- James Tien Pei-chun was voted out of the Chinese People's Political Consultative Conference for his public remarks against HK Chief Executive and the HK government's governing in line with law. The decision which outlines a blueprint of governing the country according to law, has shown the Party's resolution to build a socialist country under the rule of law, said the political advisors at the session.

Takeaway: Follow party rule and stay in line or get kicked out.

Fitch Ratings on Singapore Gaming – The rating agency noted:  1) current government policy is unlikely to shift toward increased gaming policy liberalization,  2) recent corruption crackdowns, a slowdown in China's economic growth and credit tightening have negatively impacted Singapore's VIP GGR because Chinese VIPs represent about half of total gaming revenue ad both MBS and RWS; and,  3) "the tax rate could be revisited as the government considers granting additional licences when the duopoly period ends in 2017"

Takeaway: Could a third casino license be in the offering in Singapore?

Vietnam Tax Policy(Vientnamnet) Personal income tax on earnings derived from casino winnings is likely to be scrapped according to comments by the country’s National Assembly. But the loss to the country’s tax authorities – estimated at US$9.52 million annually – is likely to be offset by a 5% increase in what’s known locally as special consumption tax, which applies to gambling. That could rise from 30% to 35%.

U.S. Internet Gambling Research Study – The Center for Gambling Studies at the Rutgers University School of Social Work was awarded $1.2 million to conduct the first comprehensive investigation of internet betting behavior in the United States. Funded by the New Jersey Division of Gaming Enforcement in partnership with the Department of Health and Human Services' Division of Mental Health and Addiction Services, the three-year project project is in response to a mandate from Gov. Chris Christie to examine the impact of Internet gambling has on problematic gambling behaviors across the state.

Takeaway: So now that internet gaming has not produced the growth and associated tax revenue, the Governor wants to study the impact of internet gambling on the New Jersey residents?  Maybe the governor is trying to soften to political conservatives?

Global Luxury Travel – Abercrombie & Kent charted an Icelandair extended range Boeing 757 for use on A&K's global "private-jet" tour packages. The aircraft, which was refitted with fifty lie-flat seats, recently completed its first trans-global "Wonders of the World by Private Jet" tour with additional flights covering Africa, South America, and the Pacific scheduled.

Takeaway: Life in the top 1%.

MACRO

Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  We're seeing bottoms up slowing in Europe cruise pricing in our monthly survey. Europe has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely. Following CCL's earnings release, we recently turned negative on those stocks based on the negative European thesis. 

Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is 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.