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    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

Tickers: MPEL, LVS, SGMS, CCL, NCLH, RCL

EVENTS  

  • TODAY (4:30pm) - WYNN 1Q CC: ; pw: 20173922

  • April 29 (1:00pm)  -  HOT 1Q CC: ; pw: 17589434

  • April 29: New Hampshire House vote on 2 casino bill (SB 113)

  • April 30 (9:00am) - HST 1Q CC:

  • April 30 (10:00am) - MAR 1Q CC: ; pw:  99597993

  • April 30 (5:00pm) - BYD 1Q CC: ; pw: 3858748

  • May 4 (11:00am) - MGM 1Q CC: ; pw: 1535291

  • May 5 (11:00am) - HYATT 1Q CC ; pw: 17020089

  • May 7 (8:30am) - MPEL 1Q CC ; pw: MPEL

COMPANY NEWS  

Galaxy - Galaxy Entertainment Group Ltd’s Broadway at Galaxy Macau, in Macau’s Cotai district, “will target leisure customers” from Macau and abroad, said Gillian Murphy, general manager of Broadway Macau and senior vice president of non-gaming operations at Galaxy Macau. The company opened online bookings about a month ago and demand “is exceeding expectations,” said Ms Murphy. “We are currently about two-thirds sold out for the first 90 days,” she added.

While no public announcement has yet been made about how many gaming tables Galaxy Macau Phase 2 will get from the government, Broadway Macau is likely to open with about 30 tables, Francis Lui Yiu Tung, vice chairman of Galaxy Entertainment, said late last month.

ARTICLE HERE

Takeaway: Strange that a month away from opening, no formal table game allocation has been given. "Broadway" not likely to make much money but good for government relations.

MPEL - City of Dreams (CoD) Manila casino resort is in talks with junket operators to bring in high rollers to the venue, said officials from Belle Corp, one of the investors in the complex. Vice-chairman Willy Ocier said that the City of Dreams Manila is boosting its VIP market, targeting to go “full blast” after May. Ocier confirmed to reporters that Suncity Group Ltd, the largest junket in Macau judged by share of VIP chip roll, would soon have operations at City of Dreams Manila.

Activity at City of Dreams Manila, which held its grand opening in February, has been in line with expectations, Belle CFO Manuel Gana said. “Mass market has been fairly healthy. We didn’t have VIPs yet in the first quarter. Since we opened, it’s a process of Melco [sic] signing up junket operators so that’s really what has been happening,” he reportedly said, adding that the company expects to see “significant growth in the near future”.

ARTICLE HERE

Takeaway: We find it hard to believe that internal expectations were for very poor GGR.  We're hearing a pretty big riff is opening between the equity owners. Stay tuned.

LVS (Marina Bay Sands) - Tweaks are still being made, with multi-level flagship stores being added to its mall and the reconfiguration of certain spaces to create an alternative ballroom. Celebrity chef Gordon Ramsay is slated to open a restaurant along the MBS waterfront this year. Between 60-65% of the resort's 9,400 employees are locals. 

ARTICLE HERE

PAGCOR - Income from gaming operations totaled PHP8.4 billion in 1Q 2015, up by 47% YoY. 

LINK HERE

Takeaway: This would suggest a run of PHP 33.6 billion for 2015 or +12% YoY GGR growth.

SGMS - On December 19, 2014, the Company filed a complaint against IGT in the District Court of Clark County, Nevada seeking to enforce the terms of the

Bally License Agreement. On April 21, 2015, the Company received notification from IGT purporting to terminate the License Agreement as a result of the

Company’s alleged breach of the License Agreement.

The Company believes IGT’s claims are without merit and disputes that the License Agreement has been validly terminated. The Company intends

to enforce its rights under the License Agreement and the Bally License Agreement and will pursue such other remedies as it determines are appropriate.

ARTICLE HERE

SGMS - to provide End-to-End Systems, Games, Table Products, and Interactive Solutions for Baha Mar Casino & Hotel. Baha Mar, the $3.5 billion resort in The Bahamas, conducted an extensive evaluation and competitive bidding process before choosing a broad array of Scientific Games' Bally, Shuffle Master, WMS and Scientific Games Interactive products for its new 100,000-square-foot Las Vegas-style Baha Mar Casino & Hotel.

  • Casino resort opens with more than 300 Bally, WMS-branded slots, including premium performers Super MONOPOLY MoneyTM, TITANICTM, WILLY WONKATM, and Wonder WomanTM 

CCL - Coral Princess arrived in Los Angeles after reporting that 71 passengers and six crew members reported gastrointestinal symptoms during the April 12-27 voyage.

ARTICLE HERE

MGM - has sent a letter to shareholders in connection with its 2015 Annual Meeting to be held on May 28, 2015. 

Contrary to L&B's assertions, MGM is very well positioned to continue delivering value to shareholders and has a clear strategy in place to deliver on the Company's potential.  Major strategic goals and opportunities for MGM include:

  • Free cash flow generating development projects including:
    • MGM Cotai
    • MGM National Harbor
    • MGM Springfield
    • Mandalay Bay – room remodel and 350,000 square feet of convention space expansion
    • AEG/MGM Arena – 20,000 seat world class arena opening Spring 2016
    • New park & entertainment district adjoining Monte Carlo and New York-New York and leading up to the arena
  • Leverage target of <5x within three years
  • Increase financial flexibility to pursue future growth projects
  • Drive margin expansion via top line growth and cost savings initiatives
  • Expand on the benefits that the Company generates by incorporating diversity as a business imperative

LETTER HERE

Takeaway: We’re in MGM’s camp here.  The L&B analysis is flawed.

INDUSTRY NEWS

Casinos not increasing control over dealers - SJM CEO Ambrose So Shu Fai denied that Macau’s gaming operators are taking steps to exert stricter control over casino dealers in order to make it easier to fire them.  “Compared to the first quarter of last year, the warning letters that we issued out to our croupiers have dropped 25%,” So stated.

Meanwhile, Galaxy's VP of public relations Buddy Lam Chi Seng said that Galaxy has already hired 6,200 people of the targeted 7,000-8,000 people. Sands China Ltd also stated that the company had “no plan for redundancies” of workers.

ARTICLE HERE

Takeaway: It would be political suicide to cut dealers at this time.

Inbound visa policy - The government of Macau has already handed to the central government in Beijing a proposal seeking to “improve” the issuance of visas to travelers from mainland China, said Macau’s Secretary for Social Affairs and Culture Alexis Tam Chon Weng. Mr Tam did not share any details about the proposal, saying only that the government wants to attract more tourists from outside China.

Chinese state media reported earlier this month that China would limit the number of visits that residents of the southern city of Shenzhen can make to neighbouring Hong Kong. China’s Ministry of Public Security’s Exit-Entry Administration Bureau will restrict residents to one Hong Kong visit a week with immediate effect, compared with an unlimited number of daily trips previously.

ARTICLE HERE 

Takeaway: If Macau govt wants to see visitation growth outside of Mainland China, they have their hands full.  On a TTM basis, visitation from HK, Taiwan, Other Asia, and non-Asia are down 4%, 4%, 3% and 6%, respectively. Visitors from Hong Kong have dropped in 11 consecutive months. Besides, it's tough to increase visitation from outside China by reducing visas from China.

 

Japan - Japan's pro-casino lawmakers have submitted a casino legalization bill to parliament, sources said on Tuesday, a move Prime Minister Shinzo Abe has supported as a part of his economic growth strategy. Lawmakers have said it was unclear when the bill would be passed. It has been delayed repeatedly amid opposition from lawmakers worried about gambling addiction.

Parliamentary records showed that members of the ruling Liberal Democratic Party, the Japan Innovation Party and the Party for Future Generations had submitted the bill, but it was unclear when it would be discussed or voted on.

Some members of the Buddhist-backed Komeito, a junior partner in Abe's coalition government, oppose legalization. Lawmakers in the pro-casino camp have said this opposition made it hard for them to push for the bill even though supporters slightly outnumber opponents in parliament.

Failure to pass the bill would also delay the drafting of a crucial second bill on implementation which outlines details on regulations.

ARTICLE HERE

Takeaway: With less than 2 months until the Diet concludes its current session, the submission of this casino bill may be too late.

Less discounting hopes - “We don’t have a specific pricing promise, but I can absolutely tell you that our goal is to raise pricing as we get closer to sailing,” said Andy Stuart, president of Norwegian Cruise Line. 

“I think Norwegian and Royal are both trying to discount less,” said Debbie Fiorino, senior vice president of CruiseOne/Cruises Inc.  

Other agents said Royal still has room to improve its policy. “Almost all of our price-drop issues occur in the 30- to 60-day window before sailing, when everyone who booked early is in penalty because that is when Royal is most aggressive,” said Don Baasch, president of Last Call Cruises in the San Francisco Bay area.

Beyond eliminating discounts, several lines said they were taking a variety of steps to encourage early booking.  

ARTICLE HERE

Takeaway:  Eliminating close-in discounting is easier said than done. Why would consumers book early when they can wait for lower prices from other lines who are not implementing a no-discounting policy? The only reason would be brand loyalty and that's hard to come by particularly with older ships such as RCL's legacy fleet. 

MACRO

Macau unemployment - The unemployment rate for January-March 2015 was 1.7%, unchanged from Dec 2014-Feb 2015. Gaming employment fell 0.7% from the previous period (Dec 2014-Feb 2015) to 86,400.
ARTICLE HERE 

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.