Takeaway: This is going to get really ugly.
Takeaway: Even on our Street low estimates, MPEL's valuation remains cheap. However, catalysts remain negative and estimates are going lower
A slight miss from our estimates on an apples to apples hold adjusted basis
- Luck-adjusted EBITDA margin: 28.1%
- Challenging VIP environment and higher labor costs
- CoD: mass table yields significantly above peers
- Highly competitive market in Macau
- 5th CoD tower: well under way
- CoD Manila: plan on opening doors in December. Grand opening: CNY 2015
- Studio City: on track to open mid-2015. Have received all necessary permits and approvals to complete project. Will double room inventory and gaming floor for MPEL.
- Repurchased ~$100m of stock for 3Q
- Property EBITDA 3Q: 27.5% (27.4% in 3Q 2013, 26.4% in 2Q 2014)
- 3Q luck-adjusted EBITDA : $325m
- 2.69% low hold impacted EBITDA by $20m
- Mass accounts for 85% of groupwide EBITDA
- 4Q non-operating guidance: D&A ($95-100m), corp expense ($30m), consolidated interest expense ($40m) of which $11m (CoD Manila), net of $27m of cap interest
Q & A
- October mass decline: downturn in market has affected premium mass segment. More uncertainties in the market.
- Anti-corruption drive having an impact on premium segment
- Reclassification of premium mass to VIP: In 2H of October, converted premium mass tables into VIP. If no reclassification, mass revenues would have been slightly up YoY rather than down 11%
- All cash business. No direct rebates.
- If Japan fall away, it will meaningfully change capital allocation/dividend policies.
- One competitor is becoming more promotional using their large room base (LVS)
- Saw more promotions in premium mass segment. Is concerned about this.
- Chinese President visit in December: in the long-term will benefit Macau; could bring a gift bag: 24-hr border crossing, etc.
- Altira: Suncity just started operations in mid-Sept. Just ramping up.
- Altira strategy: want to bring large junkets to property
- 100% occupancy: have turned away about 40% of potential customers
- CoD Manila: want to be extra safe
- Mass market margins: flat QoQ
- Studio City: usually when they do mass labor recruitment, it is 5-6 months before opening the property. Waiting to see when Galaxy does their mass labor recruitment
- Henquin Island: have not really looked at this opportunity
- CoD Manila: more VIP demand than available supply. Anti-corruption doesn't just relate to Macau; it includes Philippines and Las Vegas.
- Mass/table breakout (end of Sept 30): Altira (95 VIP, 30 MASS), COD (185 VIP, 310 MASS)
- MPEL Premium mass outperformance: quality of product and consumer service; high hold % also matters
- 2nd wave of Cotai openings will have relative competitive advantages
- Smoking ban: smokers play longer hours when they can smoking. Sees some negative impact from smoking ban. Added smoking rooms on mass floors (in CoD and Altira).
- Premium mass business at CoD: 50-60%
- Difference btw premium mass margin and grind mass margins is de minimis.
- DICJ controversy with MPEL's decision on allowing smoking on mass: MPEL believes it is completely compliant with law
- MSC: hurdle rate of 20% cash-on-cash return even with downturn in market
- Dividend policy: 30% of NI (no changes at this time)
- Altira: productivity per table substantially lower than CoD levels; productivity will be better in coming quarters
- MSC: no change to budget. Number of tables: don't know
Hedgeye’s Retail Team added KATE to our Best Ideas List as a long in early October. Sector Head Brian McGough hosted an institutional conference call yesterday ahead of earnings, detailing his bullish thesis and highlighting why KATE’s growth story is widely misunderstood. In the excerpt below, McGough outlines his 3 key points.
For access to the video in its entirety, contact firstname.lastname@example.org.
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In light of the continuing crash of its currency and stock market, we are receiving considerable customer interest on the question: “What’s going on with Russia?”
As a result, Hedgeye’s Macro Team is hosting a special “Behind the Curtain” conference call TODAY, November 6th at 1:00pm EST with Michael McFaul, one of the world’s foremost experts on Russia and Vladimir Putin. Until earlier this year, McFaul was the U.S. Ambassador to Russia and held closed-door meetings with Putin and his top lieutenants before finally stepping down out of concern for his family and his own safety.
Mr. McFaul has been called, “the leading scholar of his generation, maybe THE leading scholar, on post-Communist Russia.” He was President Obama’s chief advisor on Russia through his first term and was a main policy architect of “Reset” in U.S. - Russian relations.
A high-profile figure during his time in Moscow, McFaul was harassed and accused of orchestrating a coup. Perhaps in light of his considerable work and reputation as an expert on anti-dictator movements and revolutions, Putin reportedly stared at McFaul across a meeting table and remarked, “We know that your Embassy is working with the opposition to undermine me.”
*The New York Times recently ran an intriguing article, “Former U.S. Envoy to Moscow Says Russians Are Still Spying on Him” on McFaul detailing how Russia is still spying on him.
McFaul will provide 30 minutes of prepared remarks, followed by open Q&A moderated by Hedgeye’s analyst Matt Hedrick.
KEY TOPICS ON THE CALL WILL INCLUDE
- What are the roots of ‘Putinism’ and where is the country economically heading?
- How do weaker energy prices influence the Kremlin’s strategy (economic, political, and social)?
- How is the East-West battle over Ukraine resolved?
- What are the impacts of sanctions on Russia and the West and how might they evolve?
- Can Russia successfully pivot to the East?
- Toll Free Number:
- Direct Dial Number:
- Conference Code: 441871#
ABOUT MICHAEL MCFAUL
McFaul is the former U.S. Ambassador to Russia (from January 2012 to February 2014). Prior to this, McFaul worked three years for the U.S. National Security Council as Special Assistant to the President and Senior Director of Russian and Eurasian Affairs.
He holds a BA in international relations and Slavic Languages and an MA in Slavic and East European Studies from Stanford University in 1986. He spent time in the Soviet Union as a student in the 1980s. He was later awarded a prestigious Rhodes scholarship to Oxford where he completed his Ph.D. in International Relations in 1991.
Born and raised in Montana, McFaul is fluent in Russian, and is currently a professor of Political Science at Stanford University and a fellow at the Hoover Institution.
He is the author and co-author of numerous books, including: Revolution in Orange: The Origins of Ukraine's Democratic Breakthrough (2006); Between Dictatorship and Democracy: Russian Postcommunist Political Reform (2004); After the Collapse of Communism: Comparative Lessons of Transitions (2004); and Russia's Unfinished Revolution: Political Change from Gorbachev to Putin (2001), among many others.
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