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Tickers:  FLL, IKGH, CCL

EVENTS

  • Dec 2: 11 am ISLE Q2 2015 earnings
  • Dec 8: 10:30 MTN Q1 2015 earnings
  • Dec 8: Golden Nugget Lake Charles grand opening?
  • Dec 12: Trump Taj Mahal Closing
  • Dec 15: CoD Manila opening?
  • Dec 17:  Upstate NY casino decision

COMPANY NEWS

FLL – Announced the appointment of Daniel R. Lee as Chief Executive Officer and the favorable resolution of issues with its stockholder group -- the Board has been increased from five to nine members and the Company accepted the resignations of Andre M. Hilliou and Mark J. Miller as directors and entered into Separation Agreements with respect to their employment. To fill the resulting six vacancies, W.H. Baird Garrett, Raymond Hemmig, Ellis Landau, Daniel R. Lee, Bradley M. Tirpak and Craig W. Thomas have been appointed to serve as directors, each subject to normal and customary regulatory approvals. Mr. Lee will replace Mr. Hilliou as the Company’s Chief Executive Officer.

Takeaway: Mr. Lee makes his return to public company gaming, this time in a turnaround role at FLL.

IKGH – reported Q3 2014 results including EPS of ($0.02), revenues of $51.9 million and rolling chip turnover of $4.3 billion.  The company noted full year 2014 rolling chip turnover guidance of $16.8 billion to $17.5 billion, down from $17 billion to $19 billion.

Takeaway: Disappointing VIP rolling chip trends prevail 

CCL – Seabourn ordered a second ultra-luxury ship from Fincantieri, through the exercise of the option which was included in the order for the first vessel in early 2014. The ship, due to join the Seabourn fleet in spring 2018 and will be a sister ship to the newbuild announced earlier this year, scheduled for delivery in late 2016. These ships will continue the fleet modernization that began in 2009. The all-suite ship will be approximately 40,350 gross tons, 210 meters long and 28 meters wide and will be able to reach a cruising speed of 18.6 knots. It will carry up just 604 guests, accommodated in 302 spacious suites, all with a private balcony. 

Takeaway:  After transferring 3 Seabourn ships to Xanterra in 2013, Seabourn is back on the growth track.  Ultra-luxury is one cruising segment where demand growth is outpacing supply growth.

Virgin Cruises Government Investment Corporation of Singapore (GIC) will join the buyout firm Bain Capital as a founding shareholder in Virgin Cruises and will invest a 'substantial amount'.  At least one Middle East sovereign wealth fund and a number of family offices and high net worth individuals are also believed to be investing, according to private equity sources.  A statement about Bain Capital's involvement, revealed by Sky News last month , is expected to be made this week.

Sources said that Virgin Group would itself invest more than $100m (£63m) in shares in Virgin Cruises, using funds recycled from the proceeds of the two recent flotations.  Details of the launch plans for Virgin Cruises remain sketchy, although it is thought likely to be targeting a maiden voyage in 2019 and be based in Miami. Bankers said it would raise approximately £500m in equity and a debt package worth substantially more - possibly as much as £1bn.

Article HERE

Takeaway:  Virgin Cruises gets another important investor.  

INDUSTRY NEWS

Macau VIP Gaming Segment in Ruin – Junkets are on the hook for a surge in bad debts as China's economic slowdown and a crackdown on corruption chase some VIP gamblers away. With little access to credit and slow repayments, the capital to fund the business isn't flowing. Heng Sheng, one of the largest junket operators, told investors in October that 30% of the outstanding debt owed to its agents was over a year old. Many gamblers were making monthly installments rather than the normal practice of paying in full. Wealthy coal baron Lu Zhong Lou, ranked among China's wealthiest tycoons by Forbes, the 49-year-old from Shanxi province frequented luxurious casinos including Wynn Macau Ltd's caramel-hued VIP parlors and Galaxy Entertainment Group's diamond-encrusted saloons, owes junkets and Chinese businessmen as much as $HK3.5 billion ($451 million), according to his creditors and local media. 

Article HERE

Takeaway: Junket bad debt and lack of funding capital could lead to a more severe and protracted downturn in VIP gaming revenue. 

November Macau GGR – Nov GGR totaled HKD 23.562bn, down 19.6% YoY and down 13.4% versus October.  Market shares as follows:

  • SJM:  22.6%
  • Sands China:  22.6% 
  • Galaxy:  21.5%
  • MPEL:  13.5%
  • MGM China:  11.0%
  • Wynn Macau:  8.9% 

Article HERE

Takeaway:  Nov was in-line with recently revised (lower) Street expectations.

New Macau Secretary for Economy & Finance – Lionel Leong Vai Tac was confirmed on Monday as Macau’s next Secretary for Economy and Finance, the official that oversees the city’s gaming industry. Mr Leong replaces Francis Tam Pak Yuen, who has been in the post since Macau’s handover from Portuguese administration in 1999.

Article HERE

Takeaway: Widely expected as we noted in our November 11 Leisure Letter. We look forward to Mr. Leong Vai Tac's policy platform and stance given his prior relationships with the Macau casinos and hotels.

Macau Property Values Forecasted to Drop – Midland Realty (Macau) Ltd forecasts that real estate prices will fall by 5% next year Midland Realty's CEO Ronald Cheung, said the rise in prices is slowing as the gaming business slumps and investors seek property over the border on Hengqin Island. “Visa restrictions have been tightened for mainlanders, gaming revenue is dropping and interest rates have been raised. All these factors have contributed to the instability of the real estate market,” Mr Cheung said.

Article HERE

Hong Kong Protests Escalate – Last night and early this morning in Hong Kong, protesters fought police armed with pepper spray, batons and water hoses on Lung Wo Road in Admiralty. Earlier today, an injunction was granted to clear an area just west of the main Admiralty protest site. That sparked fears of more violence after what was already some of the worst unrest in two months of protests.

Article HERE

 

Communist Party of China Crackdown – The Chinese Government has commissioned an 'adultery map' of cheating members of the Communist Party, to name and shame officials and civil servants embroiled in scandals. The map was created by the People's Daily, the Communist Party's flagship newspaper, based on information obtained from the Central Commission for Discipline Inspection (CCDI), China's anti-corruption unit. The CCDI has been tasked by Chinese President Xi Jinping to weed out corruption, extravagance and breaches of Communist Party discipline – of which adultery is one.

Article HERE

Takeaway: The crackdown widens beyond corruption and extravagance.

China H7N9 Bird Flu – China confirmed a new human infection of the deadly H7N9 avian influenza virus, state news agency Xinhua said, the first case this winter in the southern province of Guangdong. A 31-year-old woman from the provincial city of Dongguan, was confirmed on Friday to have been infected with the virus, Guangdong's health and family commission said in a statement on its website. The patient, in critical condition, is being treated in the provincial capital of Guangzhou, it added. The H7N9 bird flu first infected three people in China in March 2013. Since then, it has since infected more than 450 people, killing 175 of them.

Article HERE

Takeaway: Bird flu headlines have taken a backseat lately

Cyprus Casino Expansion – Various gaming operators have indicated Interest in building and opening a integrated resort and casino on the Greek-controlled southern half of Cyprus, including Caesars Entertainment, Genting and Las Vegas Sands. The proposed casino legislation and regulations will be submitted to the Cypriot House of Representatives in early 2015 with the aim of selecting a casino operator by August 2015. The bill calls for a casino with at least 100 gaming tables, 1,000 electronic gaming machines and an accompanying 500-room hotel. The casino will pay 15% tax on gross gaming revenue, with annual license fees of €2.5m per year for the first four years, rising to €5m per year in years four to eight. Fees for subsequent years, as well as the initial license fee, have yet to be determined.

Article HERE

Takeaway:  What was once a 5k EGM opportunity has been shrunk to 1k.

Foxwoods Seeks Liquor Exemption – Foxwoods Resort Casino CEO Felix Rappaport says Connecticut’s casinos are at a disadvantage in the region because they have to stop service at 1 a.m. on weekdays and 2 a.m. on weekends even though they offer gambling at all hours. He wants the state to grant an exemption to casinos. Atlantic City casinos serve alcohol 24/7, and liquor is served until 4 a.m. at New York’s gambling facilities. Rappaport says he expects Massachusetts casino developers will lobby for changes to the law cutting off service there at 2 a.m.

Article HERE

Illinois Video Gaming – Since video gambling began in Illinois two years ago, the slot-like terminals have shown up in places lawmakers never imagined - floral shops, laundromats, liquor stores and gas stations. They’re also now the main attraction at dozens of storefront bistros and cafes geared toward women. Video gambling has become big business for the state, but it’s also raised some second thoughts in the process.
Article HERE

Takeaway:  IL VGT market will be peaking soon anyway, probably around 22.5-23k units.

MACRO

China Official November manufacturing PMI 50.3 vs 50.6 consensus and 50.8 in October

Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015. Following CCL's F3Q 2014 earnings release, we recently turned negative on those stocks based on the negative European thesis. 

 

Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.