Boosting our June revenue target to HK$19.5-20.5BN.
Last week was a good one in Macau with average daily gaming revenues increasing to HK$705 million per day from HK$622 million for the 1st two weeks of June. We don’t yet know if the acceleration was hold related but we are upping our full month forecast to a range of HK$19.5-20.5 billion (+50% YoY). These levels would still be a big sequential slowdown from May’s HK$23.6 billion but not surprising. June does not contain a Golden Week and May also benefited from high VIP hold. We would consider a HK$20 billion June to be seasonally and sequentially appropriate given May’s hold adjusted performance.
Market shares held fairly steady from last week with Galaxy and LVS giving up some share to MGM which seems to be back to a normalized level following an unlucky first 2 weeks. Interestingly, while still early it looks like the two major peninsula operators – Wynn and SJM – have lost the most share since Galaxy opened on Cotai. LVS and MPEL with primarily operations on Cotai, have each lost only 50bps. If market share and market revenue trends continue, it still looks like MPEL has the most upside relative to consensus EBITDA expectations for Q2.
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Notable macro and industry-specific news items and price action from the restaurant space as well as our fundamental view on select names.
Corn stocks continue to nosedive. Analysts expect a 3% increase in consumption and although production is in its fifth year of record highs, supply won't match demand. Many see the steady increase in corn usage both as livestock feed, a biofuel, and the base of an ever growing group of other products as being the driving force behind the grain’s climb. In the next twelve months, it is estimated that Chinese consumption is 47% higher than a decade ago, adding to demand an amount greater than the entire crop of Brazil.
- SBUX UK lost 34.2 million pounds sterling last year. The chain suffered a 10 million pound hit related to the collapse of the Borders’ UK operations.
- CMG has hired Mark Fabiani who will provide communications counsel related to an ongoing federal criminal investigation into whether the restaurant chain knowingly hired illegal immigrants. Chris Arnold, communications director for Chipotle, confirmed the hire in an email to PRWeek. Most recently, Fabiani was tapped by Goldman Sachs to help rebuild its image. He has also worked with Lance Armstrong to help defend the seven-time Tour de France winner against doping accusations.
- JACK pulls toys from its kid's meals and redesigns the menu boards. They say they weren't bending to pressure to remove the toys, but that the toys weren't a driving factor for business. The chain’s new menu boards seek to draw attention to higher margin items and reduce clutter.
- CBOU, PEET, KKD, TAST gained on accelerating volume on Friday. SONC and CMG declined on accelerating volume.
- PFCB was cut to Equal Weight at Morgan Stanley. The price target embedded in the report is $51.
- MRT and EAT gained on accelerating volume. TXRH declined 1.5% on accelerating volume.
- MS raises TXRH to Overweight.
The Macau Metro Monitor, June 20, 2011
THE MAESTRO IN MACAU Business Times
Steve Wynn said, "My next main goal in life is to build a hotel in Singapore." Wynn said he will to wait until the 10-year Singapore IR monopoly ends in March 2017. He added his hotel, which would need a casino component, would probably take 3 or more years to build.
CHINA HOME PRICES COOL AS GOVERNMENT STEPS UP BID TO AVOID PROPERTY BUBBLE Bloomberg
According to the National Bureau of Statistics, existing home prices in May fell sequentially in 23 of 70 cities (including Beijing and Shanghai). However, the price of new homes rose last month in 67 of the 70 cities monitored.
SJM RENEWS PRODUCTS AND SERVICES MASTER AGREEMENT WITH STDM Macau Business
Pursuant to the renewed agreement, STDM will continue to provide hotel accommodation, entertainment and staff messing, dredging services, transportation and maintenance services to SJM Holdings, effective June 18, 2011. For each service and product area, an annual cap on transactions was established. For this year, the total cap reaches HK$723 MM.
STDM is the controlling shareholder of SJM Holdings, with a 55.34% stake in the company.
This week's notable callouts include high yield and leveraged loans weakening, and domestic financial swaps tightening.
Financial Risk Monitor Summary (Across 3 Durations):
- Short-term (WoW): Negative / 1 of 11 improved / 4 out of 11 worsened / 6 of 11 unchanged
- Intermediate-term (MoM): Negative / 1 of 11 improved / 7 of 11 worsened / 3 of 11 unchanged
- Long-term (150 DMA): Neutral / 3 of 11 improved / 5 of 11 worsened / 3 of 11 unchanged
1. US Financials CDS Monitor – Swaps were mixed across domestic financials last week, tightening for 15 of the 28 reference entities and widening for 13.
Widened the most vs last week: PMI, COF, ALL
Tightened the most vs last week: GS, MET, PRU
Widened the most vs last month: PMI, MTG, WFC
Widened the least vs last month: GS, AON, MMC
2. European Financials CDS Monitor – Banks swaps in Europe were wider last week. 35 of the 38 swaps were wider and only 3 tightened.
3. European Sovereign CDS – European sovereign swaps spiked going into last weekend, as uncertainty about the Greek bailout unsettled the market.
4. High Yield (YTM) Monitor – High Yield rates continued to climb higher last week, ending at 7.62 versus 7.45 the prior week.
5. Leveraged Loan Index Monitor – The Leveraged Loan Index to its lowest level since mid-March, closing at 1602 versus 1606 the prior week. Remember that Leveraged Loans are quoted in prices, not yield.
6. TED Spread Monitor – The TED spread rose slightly last week, ending the week at 22.1 versus 20.7 the prior week.
7. Journal of Commerce Commodity Price Index – Last week, the JOC index fell 5 points, dropping to 12.6. We treat this series as a referendum on economic growth.
8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds. Last week yields rose before giving back much of the increase on Friday.
9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 14-V1. Last week spreads were flat WoW at 115.
10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production. Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion. Early in the year, Australian floods and oversupply pressured the Index, driving it down 30% before bouncing off the lows. Last week the series was essentially flat.
11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins. Last week the 2-10 spread was close to flat.
12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 0.9% upside to TRADE resistance, 1.8% downside to TRADE support.
Margin Debt Approaching Prior Pre-Crash Highs
We are now publishing NYSE Margin Debt every month when it’s released. This chart shows the S&P 500, inflation adjusted back to 1997, along with the inflation-adjusted level of margin debt (expressed as standard deviations from the long-run mean). As the chart demonstrates, higher levels of margin debt are associated with increased risk in the equity market. Our analysis shows that more than 1.5 standard deviations above the average level is the point where things start to get dangerous. Currently, we are very close to that level – April margin debt hit 1.49 standard deviations above the average.
One limitation of this series is that it is reported on a lag. The chart shows data through April.
Joshua Steiner, CFA
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