LEISURE LETTER (03/19/2015)

Tickers: IGT, H, RCL, CCL, NCLH

EVENTS

  • March 16-19: Cruise Shipping Miami Conference
  • March 26: Macau Legend 4Q CC

HEADLINE NEWS

CCL/MSC - Nine MSC Splendida passengers are reported killed in the terrorist attack at Tunis' Bardo Museum, while 12 were injured and six are still unaccounted for, MSC Cruises said. MSC said sources indicated the dead include three Japanese, two French, two Spaniards and two Colombians.

Meanwhile, Costa Fascinosa sailed at 1:55 a.m. with 13 passengers still unaccounted for, Costa said.  Costa has canceled all its upcoming stops in Tunisian ports following the attack at the Bardo museum in Tunis.

ARTICLE HERE

Takeaway:  Tunisia incident will disrupt itineraries as well as pressure pricing/bookings in north Africa. 

COMPANY NEWS  

Bloomberry - For FY 2014, Solaire reported GGR of PHP 30.39 billion, net gaming revenue of PHP 22.85 billion and EBITDA of PHP 10.08 billion.

Takeaway:  Using 4Q 2014 EBITDA as the run rate, EBITDA is trending US$276m yearly. Not bad considering the investment cost of US$1 billion. EBITDA margins also reached 44% in 2014. While it may take a year or so for CoD Manila to ramp up including the junkets, the low tax rate is encouraging for margins and junket appeal.

IGT -  won a deal for nearly 50% of the $3.5 billion Baha Mar resort’s slot floor or 500 slots. IGT will also deploy its sbX Floor Manager system at the Bahamas casino, which is set to open later this month.  The 100,000-square foot gaming floor will include IGT products such as Wheel of Fortune and the new S3000 spinning wheel cabinet.
ARTICLE HERE

China LotSynergy - had record high VLT revenues, with steady sales in the Guangdong Welfare Lottery and significant growth in Chongqing based on additional VLT rollouts. Revenues of 37.75 billion (rem) resulted in a 9.9% market share, a new high. All of its nearly 38,000 VLTs in service were replaced with third-generation units. China LotSynergy remains committed to bringing VLT to new heights in China as the market still has plenty of growth potential. 

RCL/CCL/NCLH: Cruise shipping Miami Day 2 tidbits and other news 

  • MSC will make the Chinese market even more competitive when it introduces one of its new ships there, which could happen as soon as 2017. 
  • MSC entered into a joint venture with China’s largest port operator, Shanghai International Port Group.  The Shanghai entity was the first joint venture travel agency to enter Shanghai’s pilot free trade zone last year. MSC said, “We’re very pleased and proud to have been granted a license (via the free trade zone) to sell outbound travel packages. Only four non-Chinese companies in China have been granted such a license, which creates opportunities to develop and diversify our business in China. We aim to customize our cruise product for clients with requests that cannot be met through the standard trade or tourism market. In the future, we might also use it for other projects, such as themed activities, inbound cruises, charters and more. ”
  • AIDA: With the European market nearing record capacity levels once again, the debut of the second AIDA prima-class new build from Mitsubishi in 2016 could see a further footprint for AIDA in Asia. Could they base this new ship in China?
  • Canada/New England traffic, especially to Atlantic Canada, is down slightly from 2014 to 2015, continuing a bigger drop from 2013 to 2014.

    Hyatt - is interested in the J.W. Marriott Grosvenor House Hotel in London up for sale for £500 million. A spokeswoman for Hyatt said the company "is currently focused on careful expansion in European gateway cities and hopes to open a Park Hyatt in London in the future." 

    Takeaway: M&A has been hot in London.

    INDUSTRY NEWS

    South Korea - posted its ninth consecutive YoY sales growth. But the rate of growth in gambling-related sales has continued to be sluggish at 1% – a trend that started in 2013 – the government confirmed. Total industry sales in 2014 were KRW19.87 trillion (US$17.64 billion), from KRW19.67 trillion  the year before, the government said according to the country’s Yonhap news agency.

    During 2014 revenue generated by Kangwon Land (pictured), the only local casino open to South Korean nationals, jumped 10% YoY to KRW1.4 trillion. Revenue at foreigners-only casinos increased 0.3% to KRW1.36 trillion, Yonhap additionally reported.

    In 2014, South Korea’s sales of tickets for licensed lotteries and sales for licensed sports betting exceeded KRW3.28 trillion won in each case, up 1.4% and 6.5% respectively from the year before.

    Takeaway: More evidence that it doesn't make sense to invest in S Korea unless locals are allowed.

    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.