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.