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GENTING SINGAPORE 3Q 2014 CONFERENCE CALL NOTES

Very low VIP hold - hold adjusted EBITDA beat our estimate slightly and grew YoY.  Still more aggressive than MBS, Genting has become more cautious issuing credit. VIP continues to significantly outperform MBS.   

 

 

CONF CALL

  • Very unlucky in VIP:  just below 2% versus theoretical of 2.85%
  • VIP as a % of net gaming rev: +19%
  • Bad debt:  S$40m
  • Normal hold % used:  2.85%
  • MARKET SHARE:  
    • Rolling chip volume:  61%
    • Mass volume (slots/tables):  44%
    • GGR:  49%
  • Japan: Still optimistic will pass in next session (starts in January and ends in June 2015).  Have been studying S'pore model.  Legislation will include ability for locals to gamble. Construction time likely 4 years. 
  • Per management, Genting is not buying VIP share
  • Outlook:  mass continues to do relatively well.  Optimistic that they can maintain VIP volume in 3Q into 4Q.
  • So far in 4Q, VIP is having a normal
  • Jeju:  pretty optimistic that they will get something done in 1H 2015; media has been positive about the development.  Jeju govt also support the development.  Will have an announcement in 1H 2015.  
  • Tax changes in Jeju:  will only invest if the project is profitable
  • Jurong hotel:  on schedule, on budget; start opening in May 2015 (160 rooms).  The rest of rooms (400 rooms) will open in June/July.  Want to target Malaysian market, leisure/mass punter.
  • Average spend USS: S$80
  • Average spend MLP:  S$30
  • Jeju changes:  want to expand MICE offerings  
  • Will be more cautious on extension of VIP credit
    • VIP RC lower than previous quarter
  • Why they outperform MBS on VIP?  Genting has good relationships with their high rollers.  
  • Less concerned about non-Chinese business.  They are a growing segment.
  • Rolling Chip Volume decline:  just above 10% YoY

GALAXY Q3 2014 CONFERENCE CALL NOTES

Takeaway: If we had to pick one (we don't) Macau long, Galaxy would be it, owing to an earlier opening of Phase II and more defensible VIP exposure

Mostly in-line quarter on lowered expectations. Only operator to grow VIP YoY in Q3

 

 

GALAXY Q3 2014 CONFERENCE CALL NOTES - gdgdg

 

 

CONF CALL

  • Perfect storm in Macau
  • Only company in Macau to report gains in VIP revenues and volumes
  • Galaxy Macau
    • VIP bad luck reduced EBITDA by HK$50m
    • Win/table/day +27% YoY
    • Shifted 10% of mass capacity to VIP rooms
    • Slot:  reported record win
    • LTM ROI:  60%
  • Starworld 
    • Win rate:  2.66%
    • No bad luck impact
    • Closed 2 VIP rooms in 3Q and additional 2 VIP rooms in October (15% of capacity) to reallocate tables to higher yielding use (mix of VIP and MASS).
    • LTM ROI: 108%
  • Galaxy Macau PH2:  on budget, on schedule for mid-2015, excited to introduce Ritz Carlton and JW Marriott hotels to the market
  • Grand Waldo:  on schedule; will unveil plans in January; aim to re-launch in early 2015
  • Galaxy Macau Cotai 3/4:  will double area of Ph1/2 to 2 million sq meters
  • Debt:  $240m at end of 3Q 2014

 

Q & A

  • Smoking ban:  have fully complied with regulations
  • Mass premium tables reclassification into VIP:  working close with govt on clarity on this issue.  There is cash play in VIP direct rooms. 
  • Starworld/Galaxy Macau 99% occupancy:  everyone is running near full capacity; market is undersupplied
  • Japan/Taiwan/South Korea:  actively exploring partnerships in Japan
  • Corporate expense: will see some lift when PH2 opens but trying to do things as efficiently as they can
  • Junkets:  large guys are getting better; smaller guys are experiencing challenges
  • Galaxy Macau PH2:  
    • Will have additional smoking chambers in mass floors (have 4 in PH1 and developing some in PH2 to comply with regulations)
    • Retail:  Fully leased; rents are healthy
    • VIP rooms Galaxy Macau:  still sees strong demand and into PH2.
      • Combination of new and existing junkets into PH2
    • Will add 6-8k new employees (4-6 wks from openings); quite confident in getting the necessary labor
  • Table allocations for PH2 and Grand Waldo:  have certain expectations; still in dialogue with govt

Cartoon of the Day: Central Planning #Failure

This grand central planning experiment? It's failing where it matters most, in economic growth terms.

Cartoon of the Day: Central Planning #Failure - Growth cartoon 11.10.2014


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We're Sticking with Our (Very) Successful Macro Call | $TLT

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The UST 10YR Yield is down hard on the October jobs report, and down again to 2.29% this morning after trading 10-12 basis points higher into jobs day on misbegotten hopes that the U.S. isn’t slowing like the rest of the world is.

 

Newsflash: It is.

 

We’re staying long the Long Bond (via TLT) and bond proxies. That’s where the fundamental performance is and has been all year. 

 

We're Sticking with Our (Very) Successful Macro Call | $TLT - 11.10.14 TLT Chart


MCD: October Sales Weak

MCD reported same-store sales for the month of October this morning.  Despite weak numbers across the board, they were admittedly better than feared:

  • MCD Global SSS -0.5% vs -2.2% estimate
  • MCD US SSS -1.0% vs -1.9% estimate
  • MCD Europe SSS -0.7% vs -2% estimate
  • MCD APMEA SSS -4.2% vs -6.1% estimate

 

Our take on October sales numbers were (1) estimates for the month were quite low after a disastrous September and (2) even after a small upside surprise this month there is no light at the end of the tunnel for a true recovery.  

 

Global, US, Europe and APMEA comps all accelerated meaningfully in October.  Comps in all four regions, however, remain negative on a two-year basis, suggesting there is still much work to be done; particularly when considering the strength we’ve seen in the industry over the past few months.  MCD continues to lose market share to BKW, JACK, SONC, WEN and others.

 

MCD: October Sales Weak - 111

 

Rhetoric showed no sign of direction, as CEO Don Thompson merely emphasized the need for change without much of a plan to get there.  Some initiatives to stem the company’s multi-year decline are underway, particularly in the US where the team is changing its marketing approach, simplifying its menu and creating a new organizational structure.  We expect these efforts, however, to fall short.

 

Despite positive results, on the margin, it is important to recognize that McDonald’s continues to face significant challenges across the globe.  The US struggled during the month due to “strong competitive activity;” Europe was hampered by “very weak” results in Russia; and APMEA continued to suffer from the ongoing impact of the supplier issue. 

 

As we’ve previously mentioned, it will be a long road to recovery for MCD and we're not convinced it is even underway.  It has yet to be proven that management’s initiatives will succeed and, at 17.5x NTM P/E, is difficult for us to support this stock.  We continue to stay on the sidelines here, with a bearish bias.

 

MCD: October Sales Weak - 222

 

MCD: October Sales Weak - 333

 

MCD: October Sales Weak - 444

 

MCD: October Sales Weak - 555

 

MCD: October Sales Weak - 666

 

Feel free to call, or email, with questions.

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


New 'Nike Flash' Campaign Is a Bigger Deal Than Financial Media Thinks

Quick Takeaway from Hedgeye's Brian McGough:

 

This new Nike Flash campaign is a bigger deal than the financial press will give it credit for. It's geared largely toward running, and as shown in the pictures below, the product literally glows when under a light (most notably -- a car's headlights for people who run early morning and at night). The jacket shown below retails for just under $500, and the shoes between $100-$150.

 

Most notable here is that the old way of doing things at Nike is that the company would come out with a shoe, or a shirt, and they would literally have nothing to do with one another -- and that's because the footwear and apparel organizations did not come out of their silos. But now the product is integrated in design, manufacturing, logistics, and presentation at retail. 

 

This collection will only be available at Nike online and Nike retail stores. Sorry, Foot Locker.  

 

New 'Nike Flash' Campaign Is a Bigger Deal Than Financial Media Thinks - n9


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