Genting Singapore should blow away 2010 and 2011 Street estimates.
Over the last month, consensus estimates for Genting Singapore have risen materially to S$774 and S$1,064 in EBITDA for 2010 and 2011, respectively. It’s still not enough. We believe RWS can produce almost S$1.1BN of EBITDA in 2010 and almost S$1.5BN of EBITDA in 2011. Even our estimates may prove conservative. Given the duopolistic nature - LVS is getting 13-15x for its Singapore operations - and growth profile of the Singapore market, the valuation of 10x 2011 EV/EBITDA seems low.
Before you dismiss our numbers as too bullish, consider this sanity check. Starting with the S$109MM in reported EBITDA for the first 46 days of operations and adding back S$50MM of pre-opening expenses results in S$160MM in adjusted EBITDA. Annualizing the first 46 days leaves almost S$1.3BN. Of course, RWS was the only game in town during that period and following the opening of LVS’ Marina Bay Sands, RWS gaming volumes were hit hard for a 2-3 week period. However, volumes subsequently improved dramatically following the quick absorption period. Moreover, RWS did virtually no marketing with a very limited database, operated with an untrained workforce and no junkets, and had no EBITDA contribution from the hotels or the theme park. These factors will be significant contributors over the next 12 months.
We’ve gone through a number of sell side initiation reports and post earnings update notes and found them short on details surrounding the performance over the first 46 days of operations. Genting’s Malaysian roots dictate that the company will likely not divulge the details of its gaming operations. That doesn’t relieve the analysts’ obligation to dig. We’ve done it. Here are some details.
- During 1Q2010:
- There were an average of ~800 rooms open for 70 days out of 1,300 completed rooms.
- Universal Studios was open for 13 days and was operating at a limited capacity with a cap of 5,000 visitors vs. full capacity of 25,000 daily visitors.
- The casino was open for 46 days.
- 1,200 slot and electronic table game positions were open. The property has a cap of 1,600 slot and electronic table positions.
- 300 out of 530 total tables were operating (roughly 1/3 were “VIP”). There is no table cap at the property, only square footage limitations based on proportionate non-gaming, open space.
- 93% of the S$335MM revenue reported came from gaming activity. S$312MM was net of rebates.
- 50% of the gross gaming revenues (“GGR”) came from VIP table win, defined as tables games that are on Rolling Chip programs – not necessarily on bets from players that qualified for the lower VIP tax rate. The remaining 50% of GGR consisted of slot and Mass tables.
- If we assume a 1% rebate rate, then the implied GGR was S$375MM (S$8.2MM/day), and therefore VIP gross gaming win would be roughly S$188MM or S40.8k/day (US$29k/day).
- Average daily slot win was $900 or S$1,260, implying revenue of S$70MM.
- Implied Mass table was S$118MM or S$12.8k/day (US$9.1k/day)
- Gross win per table was therefore, S$22k/table (US$15.8k/table)
- Hotel: the average occupancy was about 55% and the ADR's were in the S$250 range.
- 55% occupancy is also the “breakeven” occupancy rate at these 250ish rates.
- Universal: average ticket price is about S$65 while the average spend per visitor is S$100/day.
- The clock on the 10 year license started in March 2007. Therefore, LVS & Genting Singapore have at least another 6 years of operating in a duopoly and likely longer since it will take several years for new concessionaires to open properties even if licenses are granted in early 2017. Technically, the government can allow construction to begin earlier and just issue licenses in 2017 once the agreed upon moratorium expires. During the moratorium, the government of Singapore cannot raise the tax rate.
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We have very healthy degree skepticism of Government, Politicians and the current market rally. Our Bear Market Macro theme for Q3 remains. We just shorted the S&P 500, as we have been waiting on this level all week. Here's where we take our first shot again on the short side after a bear market rally.
(1) More downside than up - Coming into today’s trading the range for the S&P 500 is 71 points or 6.1% (1,005) downside and 0.5% (1,076) upside. We have not been short the S&P but are looking to get more aggressive on the short side.
(2) Volatility is bullish on all three durations - TRADE, TREND, and TAIL.
(3) We have moved higher in the S&P500 this week up 4.6%, on low volume and the RISK trade outperforming.
(1) Economic data, on a domestic and global level, has been increasingly bearish of late.
(2) We are below consensus for GDP growth in 2H10 – consensus estimates will need to be revised down going forward.
(3) Jobless claims saw an improvement but it was not significant enough to materially improve the unemployment rate.
(1) Bernanke needs to “Get It Off Zero”. See Keith’s post from yesterday; lack of incentive to save and a tax on fixed income is a serious concern.
(2) The bond market is closer to recognizing reality – 10yr bonds trading below 4% is a warning sign.
(3) Bearish MACRO headwinds make it increasingly less likely that we’ll see a rate hike in 2010.. and perhaps not even in 2011.
(1) Commodity-driven markets (Australia, Brazil, etc.) are broken on TREND.
(2) Copper prices continue to signal slowing global growth.
(3) Gold prices have traded down for three straight weeks - think John Paulson and redemptions. We are long gold in the Hedgeye Virtual portfolio.
(1) Consumer spending trends are slowing, and will continue to slow in 2H10.
(2) Consumer confidence had recovered from the lows, but is likely to fall aging in July.
(3) Initial Jobless claims do not support lower unemployment.
Have a great weekend,
Malcolm Knapp has released estimates for June trends.
Knapp Track estimates for June casual dining comparable sales and traffic growth were released as -1.1% and -3.5%, respectively. For comparable sales, this represents a 60 bp sequential slowing in two-year average trends to -4.4%, the worst two-year average number since December 2009. Comparable sales as measured by Knapp Track have now declined for three straight months on a two-year average basis. For traffic, the -3.5% print implies a 20 bp slowdown in trends on a sequential basis to -5.1%, also the worst two-year average print for traffic since December 2009. Traffic growth as measured by Knapp Track has now slowed for two out of the past three months.
These estimate numbers add further weight to our conviction that casual diners are failing to stimulate guest counts. The 240 bp spread between comparable sales growth and transaction count growth confirmed that the discounting environment is in the rear view.
R3: REQUIRED RETAIL READING
July 9, 2010
After another slowdown across the athletic specialty channel and the third straight deceleration in the trailing 3-week trend for both apparel and footwear, this week confirms a near-term slowdown ahead of BTS – a concern that we had alluded to last week.
TODAY’S CALL OUT
After another slowdown across the athletic specialty channel and the third straight deceleration in the trailing 3-week trend for both apparel and footwear, this week confirms a near-term slowdown ahead of BTS – a concern that we had alluded to last week. With episodic events likely to contribute to near-term variability (e.g. World Cup finals, NBA free agency signings, etc.), one this is certain – last year’s trough-low the week of June 14th where apparel and footwear were each down -6.8% and -17.3% respectively on a trailing 3-week basis is now in the rearview. While still favorable, our point is that compares will be less so on the margin going forward. This is the type of environment in which the names that have been proactively investing in their growth (UA & NKE) should start to standout.
LEVINE’S LOW DOWN
- In an effort to drive sales and cross market to the largest consumer segment interested in denim and smartphones, American Eagle is offering a promotion for a free phone if you try on a pair of denim. Not only do customers get a coupon for a phone, but they will also receive a $25 American Eagle gift card (which of course is only valid after one signs a two year phone contract!). Yes it’s gimmicky, but we admire the effort to stem the weak topline. Isn’t a monthly phone bill (even if the phone is free) more like a tax than a gift?
- With all the talk about Facebook and efforts to monetize social media networks, it’s probably not good news to hear that domestic user growth barely increased during June. After adding 7.8 million users in May, Facebook added only 320,800 new users in June. Active users stand at 125 million here in the U.S. or just a bit more than those that shop Wal-Mart each week.
- The Keds are here, the Keds are here. After an announcement back in February, the collaboration between PSS’ Ked’s brand and Gap has finally arrived. The collaborative offering for both men and women is now online and in some stores. We continue to believe this high profile collaboration will be a win for PSS at is continues to turn the iconic, but perpetually struggling, canvas sneaker brand around.
Footwear Companies Better Positioned Than Apparel Due To Boots - Going into the third quarter, footwear companies are better positioned than apparel firms even as consumers continue searching for bargains. Strong demand for boots in the upcoming back-to-school season will help shoe companies weather what has been a volatile sales year. <wwd.com/footwear-news>
Hedgeye Retail’s Take: While boots will be a key BTS item, we remind ourselves that a strong boot season rarely occurs two years in a row. Come Fall/Winter it will be touch to lap 2009’s boot performance.
Retail Real Estate Market Picks Up - Some high-profile signings in prime shopping areas led to a city-wide decline in availability, including in the Madison Avenue submarket, where availability fell to 10% from 12.8% in the first quarter. “Retailers are in a managed expansion mode, and with many owners offering attractive pricing, many retailers have found this to be the right time to make commitments,” said Joseph Harbert, COO of the New York metro region for Cushman & Wakefield. “With numerous deals in the pipeline, we expect to see activity continue into the second half of this year, leading to additional declines in availability.” On Madison Avenue, average rents for ground floor space were $831 per square foot at mid-year 2010, up 0.4 percent from the first quarter. Along upper Fifth Avenue, from 49th Street to 60th Street, rents rose 3.2 percent to $2,100 per square foot. <wwd.com/footwear-news>
Hedgeye Retail’s Take: Not surprisingly now that the dust has settled, strategic expansion is picking up. Unfortunately for those that rely on new developments for growth, there is still a void in the market. Re-use properties will remain in focus.
World Cup Win May Provide Economic Boost by Spurring Consumers - The real winner after this weekend’s World Cup final may be the economy of the champion, as either Spain or the Netherlands will get a boost from victory in the world’s most-watched soccer match, economists say. <bloomberg.com/news>
Hedgeye Retail’s Take: Spain could certainly use some help if this holds true. However, with an unemployment rate in the teens, it’s unlikely a win does much to set the country back on track.
Adidas CEO Fights Back Against World Cup Soccer Ball Claims - Adidas AG Chief Executive Officer Herbert Hainer said criticism of his company’s World Cup soccer ball has “definitely” not harmed the sporting goods maker. Players have said that Jabulani ball is unpredictable in the air and is hard to control, accounting for some of the early mistakes made at the tournament in South Africa. For the 2014 World Cup in Brazil, Adidas will try to make the ball easier to control, while maintaining its speed, Hainer said. Adidas has provided the tournament match ball since 1970. <bloomberg.com>
Hedgeye Retail’s Take: Controversy=attention=brand awareness. Looks like FIFA will be busy over the next four years working on instant replay and making sure 2014’s ball is not a key topic of discussion.
UK's John Lewis Sales Benefit From England’s World Cup Exit - Fashion was the strongest category for department store group John Lewis last week with an 18.1% year-on-year rise. After a slow start, shoppers came out in force during the period to July 3. Fashion sales growth of 18.1% outpaced home sales 12% advance. However England’s World Cup demise brought a TV sales boom to an end and electricals and home technology edged up 0.7%. <retail-week.com>
Hedgeye Retail’s Take: Good news/bad news. After Sunday, all things World Cup will fade. For now, UK retailers should be feeling pretty good about the boost given the disappointing result from the country’s much-hyped team.
BGFV Preannounces Negative - Big 5 Sporting Goods Corp. cut its second-quarter earnings guidance as it posted a surprise 0.5% drop in same-store sales. The regional sporting-goods retailer now expects earnings of 20 cents to 23 cents a share, compared with May's view of 24 cents to 30 cents. It had also expected same-store sales to rise by the low-single digits on a percentage basis. <sportsonesource.com>
Hedgeye Retail’s Take: After a very sluggish start to the quarter, sales trends were unable to recoup early losses that coincided with tough weather. Recent trends are said to have improves, especially over the July 4th weekend.
Tariff Bill Would Provide Less Duty Relief for Outdoor Footwear - Outdoor footwear retailers and vendors got mixed news Thursday when the House Ways & Means Committee posted a Miscellaneous Tariff Bill that would restore duty relief on trail runners and other outdoor products retroactive to Jan. 1, 2010, but at higher rates than stipulated in the bill that expired last year. <sportsonesource.com>
Hedgeye Retail’s Take: Inflation.
Former Lady Foot Locker CEO to Head Lane Bryant Outlet - Charming Shoppes, Inc. appointed Marla C. Anderson as the president of its Lane Bryant Outlet business, effective July 12, 2010. Most recently, she was the president and chief executive officer of Lady Foot Locker from 2005 through early 2010. <sportsonesource.com>
Hedgeye Retail’s Take: Note that Lady Footlocker is already under new leadership and this announcement has little relevance to the efforts underway at FL. Recall that the all women’s concept is one of the most improved of all sub-brands in terms of merchandise improvements and changes.
QVC Sets Ambitious Goals - With a goal to build one of the largest e-commerce transactional platforms in the world, QVC set ambitious goals this week. Plans to continue its online as well as overall growth through a three-part strategy: Building on sales from existing customers through a major upgrade of its technology platform, including new e-commerce technology that will make it easier for QVC to offer new, innovative shopping experiences and respond more quickly online to changes in customer demand; and continuing to expand its breadth of brands and product categories, including local, independent brands that it will take national and international. Building on the 22% of new revenue garnered from new customers over the past year, in large part by attracting new shoppers through social media and mobile commerce. Expanding its presence in international markets, with a planned launch of QVC Italy this October that will extend its worldwide customer base to more than 200 million households. QVC’s new e-commerce technology platform will, among other things, improve the retailer’s ability to provide extensive behind-the-scenes content that complement its shopping videos with additional product videos, blogs, forums and other features. <internetretailer.com>
Hedgeye Retail’s Take: Smart move to go on offense as tv-induced shopping is likely to gradually shrink over time. If anything, a content rich e-commerce experience should improve the already powerful platform and potentially reduce production costs over time.
Sneaker Trends: New Blue - Sneaker companies are embracing a blue mood for fall ’10, with sapphire and deep navy looks giving men a fresh alternative to black and brown kicks. <wwd.com/footwear-news>
Hedgeye Retail’s Take: A boost in the sales of fashion footwear could be a source of upside as performance/technical shoes have been driving the trend so far this year. Good news for companies like GCO if this trend holds.
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