LEISURE LETTER (12/05/2014)

Tickers:  MGM, RCL, NCLH

EVENTS

  • Dec 8: 10:30 MTN Q1 2015 earnings
  • Dec 8: Golden Nugget Lake Charles Opening?
  • Dec 12: Trump Taj Mahal Closing
  • Dec 14: City of Dreams Manila Soft Opening
  • Dec 17:  Upstate NY Casino Decision

Today's Headline Story

RCL– Celebrity Cruises has ordered two EDGE Class cruise ships from STX France for 1.2 billion euros (US$1.49 billion).  The 1st vessel will be delivered in Fall 2018 and the 2nd vessel in early 2020. The two new vessels will hold up to 2,900 passengers and be 117,000 gross tons. 

  • Based upon current ship orders, projected capital expenditures for full year 2014, 2015, 2016, 2017 and 2018 are $1.4B, $1.5B, $2.3B, $0.4B and $2.2B, respectively.
  • Capacity increases for 2014, 2015, 2016, 2017 and 2018 are expected to be 2.4%, 5.5%, 6.7%, 3.8% and 4.3%, respectively. 

Takeaway:  At $257k per berth, the cost of the two new ships is on par with that of Celebrity Reflection which made its debut in 2012. 

Moderate capacity growth has been a strategic goal for Celebrity, particularly after the sale of Century.  The premium cruiser has been resilient but the battle for their dollars will be much more competitive in the years ahead. 

COMPANY NEWS

MGM– MGM China Holdings Ltd’s co-chairman, Pansy Ho Chiu King, has said the slump in gaming revenue is simply a sign of a tendency toward slower growth after a decade of rapid expansion.  “We don’t think that this presents a very pessimistic picture. It now presents a slowing trend” said Ho. She said casinos ought to respond by holding more attractive events and by getting their customers from a wider range of sources.

 

“The visa restrictions imposed on mainland visitors has added to the gaming industry’s operational pressure, and in the short term it is not easy to introduce new client sources,” Ho added.

Article HERE

Takeaway:  The problem is not slowing growth - it's negative growth.

 

NCLH– The first floating Jimmy Buffett's Margaritaville restaurant and 5 O'Clock Somewhere Bar will be aboard Norwegian Escape.  Along with the venues on Norwegian Escape, the partnership includes Margaritaville branded food and beverage locations on Harvest Caye, set to open in fall 2015 and a 5 O'Clock Somewhere Bar on Great Stirrup Cay, planned to also debut in 2015. In the future, the partnership will extend to other ships in the fleet. Norwegian Escape will begin weekly year-round cruises from PortMiami to the eastern Caribbean on Nov. 14 next year.

INDUSTRY NEWS

Philippines typhoon– Millions of people in the Philippines began seeking shelter in churches, schools and other makeshift evacuation centres on Friday as Typhoon Hagupit bore down on the disaster-weary nation. The storm, which would be the strongest to hit the Southeast Asian archipelago this year, is expected to impact more than half the nation including communities devastated by Super Typhoon Haiyan last year. Authorities said more than 500,000 families, or about 2.5 million people, in the eastern Philippines would be evacuated ahead of Hagupit's expected landfall on Saturday night or Sunday.

Article HERE

Takeaway:  Another storm to hit the Philippines, ahead of CoD Manila soft opening on the 14th. 

  

Paradise City – Paradise Sega Sammy, a joint venture of Korean casino operator Paradise Group and Japanese entertainment company Sega Sammy Holdings will open Korea's 1st IR in March 2017.   

  • 5-star hotel with 711 rooms
  • Casino:  160 table games, 388 electronic table games, 350 slot machines
  • Boutique hotel with 103 rooms
  • 1,200 person convention center
  • Multicultural complex

Article HERE

Takeaway:  With Japan likely dead, Korea may be the next Asian opportunity.

MACRO

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.


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