“You know, I’d like to try another lion.”
That was a Hemingway metaphor for married-middle-aged-men conquering their fears in a short story called “The Short Happy Life of Francis Macomber.” It’s a story about a man and his adulterous wife on a safari hunt in Africa.
Right before she kills him, Macomber says: “I’m really not afraid of them now. After all, what can they do to you?”
Well, evidently, she (and/or a lion) can do a lot to you! And it made me think about the confidence I am building in risk managing this macro tape. Buying US Dollars, Stocks, and Bonds on dips – Shorting Commodities on rips. Feels like a short happy life, for now…
Back to the Global Macro Grind…
But, as any battle tested hunter of the Alpha knows, what we “feel” about markets doesn’t matter. In fact, fading our most immediate-term fears tends to be where we make the best short-term-happy buy/sell decisions.
Whether I’ll prove to be right on this or not for more than today is the ultimate Global Macro question right now (it’s been the same question for 6 months), but this morning it’s back to business with what I think is the best way to be positioned right now:
- Long US Dollars (UUP)
- Long long-term Treasuries (TLT)
- Long US Housing (ITB)
- Long US Consumption and Healthcare stocks (XLY and XLV)
- Short Commodities and their related stocks/bonds (OIL and XOP)
Ultimately this is the long and short of being positioned for our top Global Macro Theme in Q1 of 2015, Global #Deflation (yes, there are plenty of ways to be uber LONG of the bearish theme – because it’s only bearish for those who are long inflation expectations).
Not to be confused with Global #GrowthAccelerating, #Deflation is Mr. Macro Market’s message when:
- The World’s Reserve Currency (Cash) is in high demand vs. other countries who are burning theirs
- Both US and Global Interest Rates are falling
Anyone who has studied economic and market history knows that interest rates don’t fall unless the rate of change in GROWTH is slowing. When the rate of change in GROWTH was accelerating (USA in 2013), both the US currency and US rates rose, in tandem.
#StrongDollar and #RatesRising was the macro center-piece of the 1 real US economic consumption expansion (sub $20 Oil) too. Unfortunately, today is not the 1990s (perma growth bulls note this week’s capex cycle chart, which is slowing, faster, now).
What could change my mind on this?
That’s easy – reversing everything that’s been priced into macro markets for the last 6 months, for more than a 2-3 day trade.
What do I mean by that? For intermediate-term risk managers, here’s a list of 10 TREND levels to watch:
- UST 10yr Yield = 2.39% resistance
- US Dollar Index = 93.20 support
- EUR/USD = $1.16 resistance
- YEN (vs USD) = 117.09 resistance
- CRB Commodities Index = 235 resistance
- WTI Oil = $57.79 resistance
- Copper = $2.99 resistance
- Housing (ITB) = $25.01 support
- Healthcare (XLV) = $70.05 support
- Oil & Gas Stocks (XOP) = $54.39 resistance
In other words, my short happy life of the last 6 months is all one macro view. It’s by no means a permanent macro view. As most of you who have followed me for a long time know, I have no problem reversing the entire thing and doing the opposite.
But, as promiscuous as I can be with macro trends, is as wedded I am to my process.
And for now, you know, the #process is telling me to try another lion.
Our immediate-term Global Macro Risk Ranges are now as follows (with our intermediate-term TREND views in brackets):
UST 10yr Yield 1.83-2.02% (bearish)
SPX 2049-2080 (bullish)
RUT 1 (bullish)
DAX 110 (bullish)
EUR/USD 1.05-1.10 (bearish)
YEN 118.62-121.69 (bearish)
Oil (WTI) 41.93-51.96 (bearish)
Natural Gas 2.63-2.79 (bearish)
Gold 1140-1208 (bearish)
Copper 2.56-2.85 (bearish)
Best of luck to our Bulldogs in Blue this afternoon at the NCAA Hockey Tournament vs. Boston University,
Keith R. McCullough
Chief Executive Officer
This note was originally published at 8am on March 13, 2015 for Hedgeye subscribers.
“Do you want to build a snowman?”
If you haven’t seen Disney’s Frozen, you should. I have two daughters and a son. They love that movie. And, I must admit, I think I know all of the words to Anna and Elsa’s songs too!
Back to the Global Macro Grind…
I’m in my favorite fairy-tale place on earth this morning (Washington DC) so I’ll keep this brief as I need to run over to the Fed’s office to have breakfast with all of my buddies over there. We’re going to hammer out how we keep ice cubes from melting.
In the spirit of centrally planning things like economic gravity (and Disney’s announced sequel), we’ve named our latest idea Project Olaf. This was inspired by the inflated hopes of Frozen’s first snowman, who thought the sun couldn’t deflate his expectations.
Admittedly, while we’re wicked “smart” Ivy League guys, I think this whole idea of ours has some headwinds (like heat for example). “So”, I’m thinking that instead of building a snowman, we should just build a billion dollar ice cube app.
These meetings we do in Washington are funny. I think my defense partner, Daryl Jones, and I are the only two Canadian macro guys within 50 miles of this place who aren’t trying to get inside information on what the Fed is going to say next.
Notwithstanding the whole orange jump-suit risk part, we’re simply more comfortable reminding our audience that you don’t need that stuff to make and/or save money in macro – you simply need to front-run the predictable behavior of people who chase it.
“So”, before I have breakfast with my central planning boys, here’s what Mr. Macro Market is telling me to tell you across 10 Big Macro Risk Management Factors:
- US 10yr Yield signaled immediate-term TRADE oversold within its bearish intermediate-term TREND yesterday
- SP500 bounced right off @Hedgeye TRADE support and now needs to close > 2080 to keep the snowman from melting
- Russell 2000 (IWM) ramped +1.7% post our immediate-term buy signal (lower) on red; next resistance = all-time highs
- Weimar Nikkei up another +1.4% overnight to +10.4% YTD (vs. SPX +0.3%) signals immediate-term overbought
- Germany’s DAX has immediate-term downside to 11,506 after signaling overbought yesterday at +21% YTD
- US Equity Volatility (VIX) signaled overbought where I signaled SELL VXX on Wednesday; risk range = 13.03-17.36
- US Dollar Index signaled immediate-term TRADE overbought at 99.99 yesterday; bullish TRADE support = 97.46
- Burning Euros are straight back down this morning after their 1-day bounce; bearish TREND call remains
- Gold is bouncing (small) as the USD stops going up, but remains bearish TREND with a risk range of 1137-1179
- Oil (WTI) is probing the low-end of its immediate-term range this a.m., but has no intermediate-term support to $36.35
In other words, Global #Deflation remains a much more practical intermediate-term TREND investment outlook than building a snowman of inflation expectations in March.
Nope, sorry Olaf. It’s not different this time.
For those of you who are new to my average at best sense of humor and risk management lingo, the aforementioned dump of macro signals are meant to contextualize multiple durations:
- Immediate-term TRADE and “risk range” commentary deals with the very immediate-term
- Intermediate-term TREND themes and signals consider a duration of 3 months or more
- And if I go all “long-term” TAIL on you, I’m considering the next 3 years or less
Yep, more or less. Those are two critical words in risk management as market history will teach you that it’s a lot easier to have:
A) A “longer-term” outlook (more days in your holding period) if volatility is trending lower, and…
B) less days (more risk managing of your core investments, hedges, etc.) as implied volatility is tending higher
If that investing style rhymes with what you’ve realized using real ammo in this game of expectations, good. I’ll lose my boys at the Fed as soon as I start talking about anything that’s non-linear (like volatility). They think they can build an app to “smooth” that too…
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND view in brackets) are now:
UST 10yr Yield 2.01-2.24% (bearish)
SPX 2030-2080 (bullish)
RUT 1205-1248 (bullish)
DAX 11506-11866 (bullish)
VIX 13.03-17.36 (bullish)
USD 97.46-100.31 (bullish)
EUR/USD 1.04-1.107 (bearish)
YEN 119.45-122.01 (bearish)
Oil (WTI) 46.35-49.64 (bearish)
Gold 1137-1179 (bearish)
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
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Takeaway: Lots of noise in 4Q, but tremendous set-up into 2015. Still our top idea.
There’s no shortage of moving parts in the RH print. Though the after-hours stock reaction suggests otherwise, we think that the story is squarely on track. Actually, we know it is. We’re making slight changes to our quarterly estimates, but are not making any material changes to our annual numbers, which remain materially above consensus. While the selloff is not much given the 10% run in the weeks leading up to the print, we’d still take advantage of whatever weakness we see tomorrow. Even if the stock closes up on the day, we’d still buy it here. The roadmap as to why we think this will be a $150 stock at the end of the year is outlined below. But like it or not, the real questions that the market wants/needs answered relate to the financial trajectory this year. They key issues are as follows…
ISSUE #1: 2015 Guidance
The Facts: This was RH’s first cut at guidance for the year. RH guided to EPS straddling the $3.00 consensus – with a range of $2.95-$3.10. RH guided to revenue growth of 14-16%, and operating margins up 100-130bps to 10.3%-10.6%.
The Concern: EPS and margins look fine, but that top line looks low. When we do the math – assuming 14.5% weighted average square footage growth for the year, 20-25% e-commerce growth, and 5% growth in outlets, and new store productivity starting the year at 10% and ramping to 60% by year-end, we need to model a comp approaching ZERO in order to justify sales growth of 14-16%. Keeping it real, if this company all of a sudden starts comping zero in its stores – it arguably does not deserve a 30x multiple.
Our Opinion: There are a few moving parts here.
a) 1Q Port Strike Push: First, there is the revenue push of $12mm due to the port strike (which is over). That accounts for about 3.3% of growth shifted from 1Q into 2Q. This is not unexpected, and not a major deal in the grand scheme of things. Other retailers are losing sales outright, while RH is just seeing a delay. We’ll take that.
b) Guidance: RH is still trying to find its groove with giving guidance. Many people forget how new this company really is. Keep in mind that 2014 was really the first year that it even provided structured guidance. The company had some initial communication speedbumps with things like square footage growth and store openings. Also recall that this company has not been smoking expectations as one might expect from a hyper growth brand like RH. The results have been there, but expectations have been high. Now our sense is that it is issuing 2015 guidance at the start of its fiscal year that it does not think it will miss come hell or high water. Friedman said on the call twice that it is conservative. Though we suspect that in conversations with the Street after the call, Karen Boone will reiterate something that sounds like “Our guidance is our guidance. It’s where we think we’ll come in.” We’re ok with that. If you’re going to be conservative with a guide, you need to be convincing in sticking to it. That might hurt the stock near-term, but it presents a great opportunity.
c) Comp Trajectory Math: Think about the comp like this. RH put up a store comp of 12% in 2014, but that number accelerated throughout the year and ended up at 14% in 4Q. If we keep the 2-year run-rate of 15.6% flat into 2015, we get to an implied comp of 20%. We’re modeling 10%, which puts us 2 pennies (10%) ahead of consensus.
d) 2Q should be a big one. It benefits from…
- The $12mm push from the port strike out of 1Q. That’s 3%.
- RH anniversaries the sourcebook snafu in 2Q14 that cost the company $15-18m in revenue (about 4-5%)
- It benefits from separating the Outdoor sourcebook from the 17-lb bundle, and dropping it a month early (so people could buy outdoor furniture in April/May instead of June/July (when nobody buys outdoor furniture at full price).
e) New Store Productivity Ramp: We’re looking for New Store Productivity to ramp from 10% in 1Q to 60% by 4Q. A couple of key points.
- The Atlanta Design Gallery – perhaps the most impressive store we’ve seen in any concept – EVER – appears to be trending above plan. This is critical, in our opinion, as the initial read from this mega-store definitely will shape the consensus view about larger format stores. The conversion from the legacy store to the FLDG is putting up a direct lift in sales better than almost any gallery so far.
- Overall, few people will focus on this given the other moving parts like comps and guidance, but the fact that it is performing so well in such a short period of time is extremely bullish.
- The timing on this is critical. The store opened up at the end of November. Given the lag time of up to 12-weeks for delivery (and revenue recognition) that means that the first month’s worth of sales in the store won’t show up until Feb/March. Then we see a build throughout the year.
f) New Concepts: Management noted two new concepts in the back half of the year.
- We were expecting one…the other was a surprise to us. We have some ideas, but will let them reveal when it’s time.
- This does NOT include RH Kitchens, which – if comes out in ’15 – would be incremental. This is a function of WHEN not IF. Keep in mind that there’s an expensive team cranking on the initiative that has, thus far, been a cost center. That will turn quickly once product hits the floor. We’re not banking on it in ’15, but it is a call option.
- The company has assets today that are sitting dark…such as the initial Beverly Design Gallery. Our sense is that is likely to be used by one of these new concepts.
- Management noted that the New York (FlatIron) remodel has not lived up to expectations. That came as a surprise to us. That said, the company is in the process of building its 80-90k square foot Flagship in the meatpacking district of NYC. Our sense is that the NY store will turn into turn into the new ‘Mystery Concept’, while the downtown Flagship will carry the RH Design Gallery torch.
ISSUE #2: Square Footage Growth
The Facts/Concern: Management talked down ‘low 30s’ to 27% square footage for this coming year.
- This is not new. We were modeled at 24% for the year. This is actually a positive surprise from our vantage point. The key point here is that there are fewer legacy stores closing than people generally expect. That’s been our contention all along. RH has already pared down its real estate portfolio such that it does not have anymore bad locations. Just stores that are too small. So when it opens a 60,000 foot store in place of a 10,000 foot store, we think that in roughly half the instances, RH may decide to keep the former store open and use it for one of the new concepts that are coming down the pike. Kitchens, Baby and Child, Mystery Concept X…whatever. That results in fewer stores being closed, and lower implied square footage growth due to a higher base when new stores are added.
- 7 Design Galleries in 2016. That exceeded our expectations for the year. The company noted that it had signed 9 leases for 2016 and beyond and were in discussions on another 25 sites. That compares to 4 deals wrapped up and 25 negotiations at the end of 3Q. We were previously only modeling 5 stores at 50,000 square feet each for the year. A nice surprise on the upside.
- Management was cagey about the performance metrics, but we think the commentary surrounding the direct lift was very bullish for the market. The company needs to hit a $40mm sales number in year one ($875/ft) to hit the ROI targets which it sounds like the store is very much on track to do. Any additional lift from the direct buisiness is an added bonus and helps the company’s return metrics.
New York – Flat Iron
- Let’s be clear up front, the New York store prior to the re-model was the best performing store in the fleet. So by no means is this store a stinker, though management did say that it has underperformed. We think that means it is still outperforming the company average, but we are also fully aware of the fact that company will be jumping ship from the Flat Iron to the Meat Packing district in 2016.
- As we expected the company will decouple both the Outdoor and Baby & Child Categories from the big once a year mailer while condensing the full Source Book and mailing to a more targeted audience. Two additional books will be mailed in the back half of the year for 2 yet to be announced categories/product extensions.
- We estimate that the 17lb Source Book cost the company an incremental $35mm last year. The company will lap that this year and is the big reason why we will see muted SG&A growth (~12-13% for the year).
- This isn’t exactly new disclosure, but Karen was more steadfast in the fact that the company would plan the capital budget on a deal by deal basis. Meaning that not all deals will be structured like Denver where the landlord is covering 77% of the build-out cost. The company will look at the return and margin implications going forward to figure out the best way to deploy capital from a balance sheet that is much healthier now than it was 12 months ago.
HERE’S OUR NOTE FROM EARLIER THIS WEEK, WHICH WE STILL STAND BEHIND
RH – Key Issues Into (And Out Of) The Qtr
Takeaway: Here's all the numbers we care about into the print -- and why we still think it a very big, very under appreciated idea.
Here are the key financial metrics we’re looking for into (and out of) the RH print. The quarter was already preannounced, so the announcement is all about guidance. As we’ve already stated, we think that there will likely be a revenue push from 1Q into 2Q associated with slower deliveries due to the port strike in the quarter. Unlike other retailers that will lose revenue forever, with RH it is simply delayed. Even if this does not actually materialize over the course of the quarter, RH is likely to guide conservatively – a) to play it safe, and b) because it can (other retailers did, and the market is expecting it).
In the end, RH remains our top idea in retail. People are finally starting to appreciate the square footage growth story – growing today for the first time in seven years. But we don’t think that they appreciate why. Yes, larger stores a) stimulate greater spending in new categories and b) allow RH to showcase product that previously was shown to consumers in an iPad look-book or a Source Book (physical catalogue). But the story is so much biggger than that. The fact of the matter is that RH is rapidly consolidating the high end home furnishings space not unlike what Ralph Lauren did to the high-end apparel space in 1990 – and virtually all of its competition is structurally unable to compete. On top of that, we think that people are really missing out on the Gross Margin upside in the model as the company halves its occupancy rate (from 12% to 6% of revenue in Denver, for example) as it rolls out its new stores.
In the end, we have earnings growing at a CAGR of 45% over the next three years. If our model is right, then the current 30x p/e – which most people tell us is too expensive – will turn out to look downright cheap. And unlike other fashion-driven retail stories (i.e. current concerns about KORS) – you never really have to worry about this business going out of style.
When all is said and done, by the end of this year, we think that people will be looking at $5.00 in earnings in 2016 – that’s 30% above the Street’s $3.84. If we assume no multiple expansion (despite the higher earnings CAGR) then we’re looking at a stock price of $150 in a year. A year after that over $200 ($7+ * 30x). The biggest problem we think people will have is modeling the dilution of the convertible debt when the stock breaks $190.
Key Details On The Quarter
Revenue/Comps - For the quarter we are at 21% revenue growth. That’s broken into a few parts, full details below.
- Average sq. ft. growth of 10%, with no new openings scheduled for 1Q15.
- New store productivity of 10%. We should start to see sales flow in from the newly opened stores in LA and Atlanta but given the timing of the openings in late 3Q14 and early 4Q14 respectively and the extended fulfillment window (8-10 weeks +) we should see that accelerate beginning in the 2nd quarter.
- Retail store comp of 10%.
- Direct revenue comp of 30%. Overall we like what we’ve seen out of the visitation statistics from rh.com. The chart below looks at the YY % change in traffic rank which takes into account both unique visitation and page visits per user and ranks each site relative to every other site on the internet. It doesn’t translate to an exact comp number, but directionally it’s a very good indicator as to how things are trending. We expect the new source books/product to be released in early to mid-April, which should lead to a reacceleration of the visitation metric.
- That translates to a 21% combined brand comp. Down 400bps sequentially on a 2yr basis. Port issues could cause some revenue to be moved from 1Q into 2Q, but against weather impaired compares LY we like the set-up in the first quarter on the top line.
Port Disruptions: Our sense is that we will hear a little bit about the West Coast Port disruptions on the call. But, keep in mind that 95% of RH’s business is fulfilled from a DC, or put another way, only 5% is cash and carry (our estimate). Unlike WSM, and just about every other retailer on the planet RH doesn’t need product in its stores to conduct a sale. Could it push dollars from 1Q into 2Q? Of course – and it’s a strong possibility, but unlike WSM and apparel/general merchandise retailers, it’s far less likely those sales will be lost forever.
Outdoor – One of the big whiffs last year in the 2nd quarter was the company’s packaging of its Outdoor Source Book into the 3,200 page bundle that arrived in homes in June and July. The big problem with that is that consumers don’t buy Outdoor furniture in June, they’re sitting in it. The category refresh was unveiled on 3/13/2015, a month earlier than last year when it hit the internet on 4/10/2014 last year. The new collection is not in stores currently, but the e-comm presence should provide an extra boost in 1Q & 2Q this year. Management hasn’t articulated how it plans on handling it’s Source Book strategy this year, but our sense is that we will see 3 or 4 targeted mailings this year delivered at content appropriate times instead of a 17-pound shrink wrapped package that is 6x larger than the average phone book.
There are still a lot of moving parts on the comp line heading into 2015. Here is a quick look at when the 4 newest Design Gallery’s/remodels will be entering the comp base. We don’t expect any additional Legacy Store closures outside of those closed when RH opens new Full Line Design Galleries in Chicago, Denver, Tampa, and Austin.
- Greenwich, July 2015 (tail-end of 2Q15)
- NYC Flat Iron, August 2015 (beginning of 3Q15)
- Melrose Ave., December 2015 (middle of 4Q15)
- Atlanta, February 2016 (late 4Q15, early 1Q16)
For the year we are at 27% revenue growth. That’s driven by 14% growth in average sq. ft., a 17% retail comp, 27% growth in DTC, which equals a 23% combined brand comp. We are modeling a sequential improvement throughout the year on a 2yr basis with the highest comp YY falling in 2Q as the company laps the Source Book hiccups in 2014.
- Gross Margin - On the occupancy front the company is facing similar headwinds to start the year as it did in the 1st quarter LY. Additional details...
- DC occupancy headwinds due to the opening of the new West Coast DC are similar to what we saw when the company dealt with the added cost of the Dallas DC and Ohio Shelf Facility last year.
- Dead rent started to hit the P&L in 4Q and will continue to be a headwind until the company gets the 4 new doors planned for 2015 fully operational. It takes RH on average 6 months to turn a property once it gets the keys from the landlord. RH opened 4 stores in 2014 so the incremental cost in ’15 should be very slight on YY basis. The only difference here is the Beverly Boulevard store which is currently sitting dark while the landlord collects rent.
- On the positive side, the company will see a benefit on the merch margin side as the price increases associated with the 2014 Source Book launch flow into the 1st quarter.
- SG&A – The change in source book strategy will be a headwind in 1Q similar to the prior two quarters. On the positive side, there are no incremental costs associated with new store openings. Net/net we think it’s a positive. We’re modeling 45bps of leverage in the quarter.
- EBIT Margin – For the quarter we are modeling operating margins at 5.3%, driven by 100bps of GM improvement and 45bps from SG&A leverage.
- For the full year we are modeling 210 bps of EBIT margin improvement from 9.2% this year.
- Gross Margin – The 70bps of GM improvement in 2015 is driven by a) occupancy leverage as the new Full Line Design Galleries start to make a meaningful impression on the top line and b) the once per year Source Book strategy continues to smooth out the product flow curve helping on the shipping side. We don’t expect a big benefit from mix (as in a larger percentage of non-furniture business) until some of these new categories hit critical mass and kitchens fully ramps up. That will be a 2016 event. Dead rent and DC occupancy will be a headwind for most of the year.
- SG&A – Leverage on this line item should improve sequentially throughout the year as the company laps the increased marketing spend from last year driven by the 17lb Source Book. That coupled with G&A leverage on higher sales volume gets us 140bps of leverage for the year.
Takeaway: Mgmt believes the Macau govt have about 400 new tables to allocate to Cotai in 2015. Mgmt will also ask for additional tables this year.
PRESENTATION SLIDES HERE
- Past months have been challenging in Macau
- Visitation in Fisherman's Wharf have increased 5% YoY from 4.1m in 2013 to 4.3m in 2014
- Interested in South Korea, Japan and other Asian countries
- Margins from Direct VIP are attractive
- Not overbuilt and fully funded
- Targeting mass segment
- Marina Ph2 (convention center/additional hotel/larger marina) -expected Q2 2016
- Opening of Harbourview Hotel (Feb 2015) attended by both Macau officials and Central govt officials
- Total hotel inventory is around 1,000
- Legend Palace Hotel (Q2 2016) (Monte-Carlo theme): applied for construction license for superstructure. Expect approval very soon.
- Expect govt approval to operate the marina by June 2015
- Submit for application for MFW phase 2 redevelopment:
- Non-gaming as a % of total revenues: 29%
- Will reclassify some VIP tables into Mass
- MLD has performed Peninsula on GGR
- Only report 2% of outsourced VIP revenue as MLD revenue
- Harborview construction took ~1 yr; right now, have 33 gaming tables in operation
- Dinosaur experience: hope to start construction later in 2015
- Performance theater: expect to open Q2 2017
- Labor market continues to be tight in Macau. Have added pension scheme as part of retention policy
Q & A
- Macau govt - they have about 400 new tables to allocate to Cotai in 2015.
- IVS study: Chinese govt will not stop anybody from coming and will not hurt Macau. Want Macau to be more non-gaming and an international destination.
- Will you apply for new tables in 2015? Can move 10 tables from Landmark. Will ask govt for extra tables in 2015. The 35 tables are not fully in operation since they are still training staff. They will be fully utilized by Q2 2015.
- By Q2 2015, all 185 tables will be in operation.
- Q4 2014 vs Q4 2013: didn't have any extraordinary items in Q4 2014. In Q3 2014, recognized $81.7m HK accrual from Legend contribution.
- Casino mgmt system: fixed rate contract Bally (biggest casino operations cost)
- Additional costs from transition to new system and new staff from Bally; costs will come down in future quarters.
- How much capital they have spent to date: spent HK$1.3 billion for MFW redvelopment and Landmark renovation project. Total budget: HK$8 billion.
- Capex guidance: $2.5-$3.0 billion in 2015 and 2016
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