LEISURE LETTER (08/5/2015) - MGM, G13.SI, MPEL, IKGH, 1159.HK, 27.HK, 582.HK, CCL, RCL

TICKERS: MGM, G13.SI, MPEL, 1159.HK, 27.HK, 582.HK, CCL, RCL




August 6: 8:30am: MPEL 2Q CC ; PW: MPEL

August 6: 8:30-1pm: RCL INVESTOR DAY (NYSE)

August 7: 11:00am: Hedgeye Macau Call 

August 11: 4:30pm: STN 2Q CC

August 12: 7:00am: 880.HK 2Q CC 

August 13: 6:00am: G13.SI 2Q CC

August 19: 7:00am: 27.HK 2Q CC 


G13.SI - Genting Singapore has warned investors that it expects to report “a significant decline in net profits after tax” for the quarter ended June 30 when they report earnings next Thursday.  “This is due mainly to fair value loss on derivative financial instruments as a result of unfavorable market conditions and unrealized foreign exchange translation losses,” the firm said in a Tuesday filing to the Singapore Exchange.  Genting Singapore added: “Notwithstanding the foregoing, on a theoretical normalized hold basis, the group expects its adjusted EBITDA [earnings before interest, taxation, depreciation and amortization] for the second quarter of 2015 to be comparable to the preceding quarter.”


Takeaway:  Based on gaming tax data and MBS results, we were projecting for Genting S$241m EBITDA for Q2 2015 (vs $230m for Q1). Street Q2 EBITDA estimates were much higher.


Macau Hotel Occupancy - According the Hotelier's Association, "The city will see continual improvement in the hotel occupancy rate in August, although the rate could still show a YoY drop of 5% to 10% in this peak travel month, Macau Hoteliers and Innkeepers Association forecast."  

  • In August last year, when the city had 27,900 rooms in hotels and guesthouses in operation, the occupancy rate hit a high 90.1%, led by 5-star hotels at 91% and 4-star properties at 92.3%.
  • By the end of June this year, there were a total of 29,900 rooms from the 102 hotels and hotels in operation, representing a 7.2% YoY increase. 
  • The average hotel room rate for summer this year shows a YoY drop of 15% to 20%, as the casino operators here have continued to offer discount packages for attracting guests.


Takeaway: Could REVPAR fall 30% in August?


MGM - MGM Resorts sues Connecticut Governor over Tribal Casino Act.  They are suing to prevent the construction of a tribal casino in Connecticut that would compete with the company’s own resort being built in Springfield, Massachusetts.  

  • The company said the measure, signed by Malloy in June, violates federal law because it discriminates against out-of-state competitors who are barred from trying to develop a casino in Connecticut.  
  • “MGM is ready, willing and able to compete for the opportunity to develop a commercial casino gaming facility in Connecticut, but is excluded by the act from competing for this opportunity,” the company said in its complaint.



MPEL - Studio City will open on Oct 27.  Lawrence Ho Yau Lung, co-chairman and chief executive of Melco Crown, said at the press conference that he hoped Studio City could open with 400 tables.  A Melco Crown spokesman confirmed that the entry fee for the Ferris wheel will be MOP100 (US$12.50) for adults, and MOP80 for children. The property is designed to appeal in particular to mass-market visitors that might wish to see non-gaming attractions as well as play casino games.


Takeaway: MSC is unlikely to receive 400 tables. We're hearing 150 but wouldn't be surprised if it's 250.  The Oct 27 opening date is later than previously forecasted Q3 opening. 


1159.HK - Hong Kong-listed, Jimei International Entertainment Group Ltd on Monday issued a positive profit alert for the first half of 2015.  The casino junket investor said it expects a consolidated profit for the six months ended June 30, as compared to a loss recognized for the corresponding period in 2014.

  • The turnaround is “mainly attributable to the profit contributions from the group’s newly established gaming and entertainment business since February.”
  • On June 30, Jimei International Entertainment announced that one of its units had agreed to operate at least seven VIP gambling tables at NagaWorld casino resort in Cambodia.



27.HK - A Galaxy Entertainment Group Ltd executive has called for Macau to develop more tourist attractions other than gaming, the Hong Kong Economic Times reports.  “Do the customers already find Macau boring? We think that the city needs an adjustment period,” the Chinese-language newspaper quotes the company’s director of business development, John Au, as saying in an interview.



582.HK - Landing International has agreed to acquire a half stake in a South Korean casino from its partner Genting Hong Kong for 130 trillion won (HK$864 million), as it bet on the opportunities brought about by the influx of Chinese tourists.

  • “[The Jeju casino] will provide a good platform for the group to build up its own brand name and goodwill in the gaming industry, and to develop its own professional team in casino operation and management,” Landing said in a statement to the Hong Kong stock exchange. 
  • Jeju is one of South Korea’s visa-free entry points for mainland Chinese tourists, whose visits to the country surged 58 per cent to 2.9 million last year, the statement shows.



CCL - AIDA Cruises has made adjustments to its winter deployment as the voyages of the AIDAprima from October 2015 can not take place as originally planned, said the German cruise line. The Mitsubishi Heavy Industries Ltd. (MHI) shipyard in Nagasaki, Japan, announced that it is not able to maintain the schedule for completing the vessel.  The actual delivery date will be announced at a later date and the ship will debut in Hamburg next spring.  The AIDAstella will assume some of the winter routes, as she will be moved out of Europe this coming winter.


 Takeaway: Delay in AIDAprima delivery

RCL -  Insider Transactions:

  • Adam M Goldstein , Pres., Chief Operating Officer of Royal Caribbean Cruises Ltd sold 4,184 shares on Aug 3, 2015. The Insider selling transaction was disclosed on Aug 3, 2015 to the Securities and Exchange Commission. The shares were sold at $91.08 per share for a total value of $381,094.19.
  • Chairman & CEO Richard Fain sold 151,032 shares on August 03, 2015. The reported shares were unloaded at an avg market stock price per share of $90.4, for a total trade of $13,650,151. Richard Fain holds around 0.64% of RCL's market cap or 1.42 million shares.




Macau Suspect Gaming - Macau’s Financial Intelligence Office says there was a 14% YoY increase in suspicious transaction reports – also known as STRs – in the city during 2014.  There were 1,812 STRs in 2014, compared to 1,595 such reports in 2013. The lodging of such reports does not in itself indicate criminal activity has occurred, but does indicate that a transaction had been earmarked for closer scrutiny.



Macau Airport Passenger Volume - The city’s local airport posted a year-on-year increase of 3.6% last month for passenger volume, while aircraft movements jumped 10.7% compared to the same period last year, the airport operator Macau International Airport Company Ltd (CAM) announced yesterday.  Last month, the local airport welcomed more than 510,000 passengers and managed over 4,800 aircraft movements, according to CAM.



Hengqin - Zhuhai Hengqin Chimelong Ocean Kingdom theme park received 30% more visitors from January to July compared to the same period last year, according to a press statement by the Guangdong Chimelong Group Co., Ltd.  The statement doesn’t specify the number of visitors received during the period but says in 2014 Ocean Kingdom welcomed more than 8 million visitors.



Chinese Tourism - 4 Million Chinese tourists are expected to head to Japan this year for vacation, with Shanghai residents comprising the bulk of those travelers.

  • More than 40% were from the greater Shanghai area last year, according the local Japanese consulate, while Beijing accounted for about a quarter of Japanese visas granted.
  • Japan saw 2.7 million Chinese arrivals last year, rising 47% from a year earlier and boosting a trade relationship battered by the island dispute
  • The Chinese tourists spend between 200k-400 yen (~US$1,600-~US$3,200) per trip, according to a March survey by advertising firm Hakuhodo DY Holdings.


Takeaway:  With MERS concerns in Korea, Quantum has diverted sailings to Japan for the summer season. The avg Chinese tourist spend of $1600-$3,200 is quite bullish. 


Hedgeye Macro Team is incrementally bearish on U.S. consumption growth, based on the consumer's continued efforts to deleverage their household balance sheet combined with the peaking of consumer confidence and stagnating labor productivity.   

Takeaway:  For now, US regional gaming slowed in June but North American cruise pricing still doing well.

KATE | Quick Thought on EPS

Takeaway: All-in, enough to stop the bleeding. When people start to look at ‘16 numbers, KATE looks downright cheap -- 90% growth and 17x pe.

While not a blowout quarter, KATE did not need one. The 10% comp was solid against a 7% consensus. Just as important to us is that EBITDA margins were +300bp, in-line with our model and double the consensus. Inventories up only 5.6% on 20% adjusted sales growth. The company took up EBITDA guidance by $5mm with a $2.8mm beat on the quarter. Similarly, comp guidance for the year was taken up from HSD to 9-11%, which implies 12% in the back half to get to the top end of the range – a number we think KATE can, and will beat.


One concern people might have is that e-comm was flat vs last year. But we were looking for a sequential slowdown due to the significant pull-back in FLASH sales. Also note that store comps accelerated from 6% to 12%, and on a 2-year basis from 14% to 22%. Not many retail stores are putting up a meaningfully accelerating comp trend these days.


Is this print enough to get KATE back up to where it was ($32) before the precipitous KORS-inflicted sell-off started in May? Definitely not. But it shows a level of consistency in sequentially improving results at a time when ‘perceived’ competitors are falling apart (note Coach put up a -19% comp yesterday, and threw KORS under the bus on its conference call by implying that it was driving down the category).


We think that at a minimum, these results should put a floor on KATE, which otherwise couldn’t seem to find a bottom. Its continued bifurcation in results between KORS and COH should make this much tougher to short, and when people turn the clock forward and look at 2016 numbers, KATE begins to look downright cheap relative to its growth – i.e. 90% growth and a 17x p/e.


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USD, UST 2YR and China

Client Talking Points


In the end, Americans should like our long-term #StrongDollar theme, but not all macro markets and corporates will in the meantime – this is the tug-of-war and #deflation is winning it. That said the USD is signaling immediate-term TRADE overbought at $1.08 vs Euro today, so be careful with grossed up Energy/Metals shorts.


This is the 4th time the chartists have called for a “breakout” in the 2YR at 0.73-0.75% (since March) and every time that’s been wrong as both growth and inflation data slowing continue to back Fed Fund Futures off the SEP rate hike – we’re one bad jobs report away from rates breaking down faster (again).  


Slower-for-longer (pretty obvious from a bottom up or top down research perspective)? But how about lower-for-longer for the propped up A-Shares? Couldn’t hold anything more than a 1-day gain with the Shanghai Composite down another -1.7% overnight, continues to signal bearish TREND in our model with no support to 3,441.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

HOLX’s earnings release were as good as we expected, and in some spots, much better than our optimistic view. Given the move in the price, we did begin to do some work on Hologic’s Diagnostic segment. We touched base with a lab Director who currently does his testing on Hologic/Gen-Probe’s Panther system. During the call management made some positive comments about uptake of the systems and rising utilization per box. Our contact suggested the benefit from the Affordable Care Act was substantial  over the last 12 months, pushing volume up to a mid-teens growth rate, but that trends were flattening. But on the positive side Qiagen continues to cede share with an out of date test and the alternatives are primarily Roche and Hologic, but not Cepheid’s system. The bottom line is that we may be too conservative with our estimates for Diagnostics, which we’ve been assuming treads water from here.  However, we’re starting to think there is some incremental acceleration that’s possible, which would be welcome news indeed.  


After attending PENN’s analyst day at the Plainridge Casino in Massachusetts our Gaming, Lodging & Leisure Team struggled to find any negative takeaways. The property opened very strong in late June, and the strength continued in July. We are now raising our win per day per slot assumption to $500 from $400. Terrific highway access, a lower gaming tax rate and garage parking provide a competitive advantage in what seems to be a deeper market than the consensus view. Our 2015 and 2016 estimates are materially above the Street for EBITDA and EPS. Most importantly, we think PENN should generate an ROI of 28% on Plainridge, much higher than the Street anticipates.


As largely expected a sequential acceleration in GDP from Q1 to Q2 on a seasonally adjusted annual basis pulled forward the market’s expectation for a rate hike which = USD strength. The USD finished positive on the week (+0.50% on Thursday’s print alone).

  • U.S. GDP reported Thursday for Q2 came in at +2.3% on a Q/Q seasonally-adjusted annual rate and the market took it as a positive print à rate hike expectations pulled forward.
  •  Remember that 1) Consensus focuses on this SAAR number and 2) The GDP acceleration came off of an awful Q1 print (Q1 revised to a measly +0.60% for Q1 vs. initially reported -0.20%)
  • On a Y/Y basis (crazy Hedgeye speak) GDP for Q2 actually decelerated to +2.3% YY vs. 2.9% prior
  • With very difficult base effects in our model for 2H 2015 GDP we expect Q2 data (especially the GDP print) to provide support for the USD
  • Our expectation for Y/Y GDP in Q3/Q4 are +1.6% Y/Y (+1.4% Q/Q SAAR) and +1.5% Y/Y (+1.7% Q/Q SAAR) respectively; These prints (Q3 will come in October) will stoke a relatively more dovish FED for a short time (USD headwind) but until then we’ll ride the Q2 data train.   


Three for the Road


VIDEO: This is What Deflation Leads You To $TLT… via @hedgeye



Only the wisest and stupidest of men never change.



The average American spends about 70 hours a year on lawn and garden care, according to the American Time Use Survey.

Big Summer Blowout!

“Hoo-hoo! Big summer blowout!”



Forget the blowout in #Deflation-linked currencies, commodities, stocks, bonds, etc. this morning and focus your mind on the old-new bull case that didn’t work. “Gas prices are low” is back. Everyone who loved US growth with high gas prices loves a big summer blowout!


Disney (DIS) reported blowout earnings last night (sort of), but everyone and their brother’s sister owns the Low-Beta-Big-Cap-Chart (Style Factors that are working) at this stage of the game, so the stock is indicated down -6% on that. Stocks do correct.


I have (going on) 3 daughters  (1 son), so I’m a big Frozen fan (sort of). Sadly, my son and I both know every word to some of your favorite Frozen songs. To commemorate our wedding anniversary today, I used my wife Laura’s favorite movie scene as my opening quote.


Big Summer Blowout! - 08.05.15 chart2


Back to the Global Macro Grind


Big summer blowout in Oil, Russian Rubles, Linn Energy (LINE) – and Apple! And while I wasn’t brave enough to signal buy on “valuation” in any of the #Deflation-links, yesterday I did dip a toe in the water in AAPL as it was signaling immediate-term TRADE oversold.




Don’t worry, I’m going to keep the most over-owned stock in human history (that’s what I called it when it broke the @Hedgeye TREND risk line of $126) on as short a leash as my man Oaken did his cabin inventory. Being long AAPL from here isn’t going to be easy.


Since the bull case for AAPL is efficiently “covered” by the Old Wall, let’s apply some Style Factoring to the analysis this morning:


  1. LOW-BETA – yes, relatively speaking to DIS at 1.1, it has a 0.9 Beta
  2. SIZE – does the mother of all market caps have “Big Cap”? obviously, yes
  3. SECTOR – oops, Tech (XLK) is bearish TRADE and TREND @Hedgeye (mainly because AAPL is)


AAPL is the heaviest weight in the XLK (Tech Sector ETF promoted on the inside cover page of Barron’s this weekend) and it’s bearish TRADE and TREND right now whereas MSFT and GOOGL are bullish on both of those risk management durations.


In other words, that’s why I said being long AAPL for anything more than a Real-Time Alert TRADE signal isn’t going to be easy. It’s always easier for me to be long companies like GOOGL (Low-Beta at 1.0, Big Cap, #NiceChart!) whose recent earnings release was a good thing.


When a company’s most recent report was a bad thing, then “longer-term” investors are hostage to all of the other bad macro things that could affect the price/volume/volatility of the stock (until they report their next quarter).


Moving along to that darn China thing (yep, it’s a Style Factor in your portfolio too), the Chinese dudes who have been trying to ban everyone from selling saw more selling overnight. This puts the Shanghai Composite in the following multi-duration @Hedgeye frame:


  1. CONTEXT: down -1.7% overnight (post a +3.7% up day prior, but a down -10.1% week prior to that)
  2. TRADE = bearish, with no immediate-term support to 3441 (closed at 3694)
  3. TREND = bearish, with intermediate-term resistance up at 4271


This is another major reason why owning AAPL is less easy than it was when the chart “looked good.” China is a very “bad macro thing” affecting the emotional break-downs of moving monkeys chasing AAPL’s “200-day.”


How bad is that thing btw? China, I mean. Since these dudes make up the numbers, can you have any confidence that you know the answer to that risk management question? Why can’t China be to 2015 what Lehman was to world markets in 2008?


Back to the big summer blowout in “gas prices” thing. As you can see in today’s Chart of The Day, back by popular client demand is the refreshed Hedgeye Squeeze Index, which reminds you that gas prices are only 6% of the median US consumer’s expenditures.


If you want US consumers (the median, who only makes < $50,000/year – no that’s probably not you) to accelerate real (inflation adjusted) spending, what you really need is a big generational blowout in their #1 cost-of-living (hint: shelter = 26%).


Oaken, bro – give me a price check on that. CoreLogic’s report on US Home Prices was +1.7% month-over-month (reported yesterday), taking year-over-year US #HousingInflation to +6.5%. That’s the 4th straight month of acceleration, in rate of change terms.


Sure, my boys reiterated our bullish 2015 housing call on that data point. But you can’t climb this mountain and come out of the US cost-of-living cabin feeling like everything was on sale. Boo-hoo!


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.14-2.29%

SPX 2068-2119
VIX 11.86-15.24
USD 96.99-98.34
EUR/USD 1.08-1.10
Oil (WTI) 45.01-47.54


Best of luck out there today,



Big Summer Blowout! - 08.05.15 chart1




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