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MPEL Q2 2015 CONFERENCE CALL NOTES

Takeaway: Weaker than expected in Macau due in part to Mass hold. Manila an emerging bright spot.

conF CALL 

  • Net revenue Q2 2015 was $916.8 million, (24%) YoY from US$1,199.5 million 
  • Despite Low hold in premium mass, they are happy with their ability to hold their share. 
  • July is showing stronger signs relative to recent trends. Especially on the mass side
  • Hotel occ has remained at nearly 100%, relative to the market that is very strong
  • Cost control has been very consistent, and has aided margins
  • Studio city continues to create job opportunities for the local community and has been very well received.
  • Integrated resort will serve as a growth catalyst. 
  • Location of Studio city is prime, with close proximity to the lotus bridge. 
  • Ex. gaming operations continues to serve as a great compliment for customers. 
  • Studio city will include a number of attractions never before seen in Macau.
  • 1,600 rooms, 350k sq/ft of retail space, and 30 fnb options
  • Manila continues to expand across all segments 
  • Leads Philippines in visitation and occ
  • Rolling chips segment generated 2.5x the prior period as junket efforts start to ramp up
  • The decline in net revenue was primarily attributable to lower rolling chip revenues and mass market table games revenues in Macau
  • Offset by the net revenue generated by City of Dreams Manila, which started operations in December 2014.
  • Q2 2015 Adjusted property EBITDA $204.9 million vs. Adjusted property EBITDA of $313.6 million Q2 2014. 
    • Adjusted property EBITDA (35%) YoY  
  • GAAP net income $24.3 million, $0.05 p/s vs. $0.26 p/s in 2014 
  • CoD Macau
    • Net revenue of $654.2 million vs. $967.5 million in 2014 
    • City of Dreams generated Adjusted EBITDA of US$179.0 million (38%) YoY
    • Rolling chip volume totaled $11.1 billion vs. $22.1 billion in the second quarter of 2014. The rolling chip win rate was 2.7% in both quarters ended June 30, 2015 and 2014. 
    • Handle of $1,116.7 million vs. $1,511.4 million Q2 2014.
    • Non gaming revenues of $28.6 million 
    • low hold impact of $20 million in EBITDA 
    • 50 mm in costs expect to realize 
    • Corp expenses to remain flat with prior q. 

Q3 guidance

  • d&a = $110-$115 million
  • corp expense - $20 million -$25 million

CoD Manilla - building lease payment = $7 million 

q & a 

Utilization capacity for tables? 

  • Not a real meaningful way to look at it at this point. Due to their contribution to Macau they would be very upset to receive 150 table allocations. But do not expect it. 

Optimistic about their contribution of non gaming attractions as a factor for the govt. to be generous?

  • Yes we are, see themselves as a model citizen and this should help them with the govt going forward. 

Given assumptions on tables, how do you plan to allocate the tables? Will it be similar to CoD? 

  • Table number to drive the decisions. But the shift in VIP tables to the Mass side plays a factor. The floor set up is very flexible to shift their lay out. 
  • As of now it's tough to say since they do not 
  • Look to bring over the high end premium feel to Studio City from CoD 

CoD more table shifting?

  • See the level as quite optimum right now at CoD and Altira. Not looking to make more changes in terms of floor lay out 

Macau at a bottom?

  • July looking stronger. Transit visa is a huge sentiment shift. Prior to that there had been only negatives surrounding Macau. 
  • VIP, structurally, will never be what it once was. 
  • Lower comps going into 2H and 2016, should be very helpful. 

Focus of Studio City? Lots of foot traffic will mean a shift towards mostly mass and premium mass clientele?

  • Studio City offers far more flexibility because of the other attractions and the experience we will offer. 
  • Efficiency and experience they gained from Cod and Altira will assist the opening of Studio City.

$50 million in savings? How?

  • Combo of a number of initiatives. Will not be split evenly. Could see more at CoD than Altira. But the savings will be widespread. Savings should be more back end loaded. 

Market shifting to mass? what makes mass successful? what are the drivers?

  • MPEL has a been a pioneer for premium mass. 
  • Lots of hotel rooms helps. but that's mostly for grind mass. 
  • Service combined with rooms really assists the premium mass, extra restaurants, bars, etc. 
  • Premium mass client is very sophisticated and needs the additional amenities 

Seeing other competitors extending credit for premium mass players and comped rooms? 

  • Have heard some things in the past. but for the most part them and all the competitors have been very rational 

Number of tables you can operate at Altira?

  • Reduced tables for VIP. Altira should be more resilient in terms of rolling chip volume, relative to mkt 
  • Key is more on the optimization of the small junket operators

 

How can you ramp up CoD Mannilla? 

  • Being careful with who they choose as Junket operators. Bring on another Junket operator in late summer. Must be cautious about credit. 

Beyond VIP, what should we think of the rest of the market in Manila?

  • Very happy with the product they have built so far. The trick is the same. Grow the database and continue to monetize the database and visitation. Lots of work to be done but the early signs are great. 

 

 

 

 

 

 

 

 

 

 

 

 


WWAV | EARNINGS PREVIEW & POTENTIAL ACQUISITION

WhiteWave Foods (WWAV) is on the Hedgeye Consumer Staples Best Ideas list as a LONG

 

EARNINGS PREVIEW

WWAV is set to report 2Q15 earnings this Friday; we are expecting to see another blockbuster quarter of robust organic growth in the high-single digits to low-double digits. Consensus estimates have EPS coming in at $0.25 an 8.7% increase YoY. Followed by total net sales of $928.1mm representing a 10.7% increase YoY. And gross income of $320mm which represents a 12.3% increase YoY and a 100 basis point margin expansion. To outperform these expectations would be tough, but realistically we believe that WWAV can match the street and that’s all they really need to do to.

 

During WWAV’s 1Q15 earnings call they raised adjusted diluted EPS guidance to $1.10 to $1.14 for the full-year 2015, increased from previous guidance of $1.08 to $1.12. Consensus estimates are currently projecting near the high end of the range at $1.13, leaving at least a penny of EPS on the table. We think WWAV will get the $1.14 and possibly more for the full year. 

 

Within this earnings will be another quarter of Horizon center-of-store products on the shelf, So Delicious, as well as a better read on the China JV. On the Horizon front I think we will see positive results, with increased sales, as premium milk buyers notice the trusted brand on center-of-store products.  So Delicious is such a dominating brand in the dairy-free category within the natural channel, and we really believe its success is really just beginning. The China JV admittedly is a wild card this quarter, although the sales will probably still be minor, the read they are getting on the business will be vital. We think it will be a positive outlook with some caution given the macro environment in the country.

 

It will be interesting to see if the droughts in the west continue to hamper the Earthbound crop. Although addressed in the 1Q15 call as a non-issue for 2015, conditions may have gotten worse than expected.

 

All-in-all we continue to believe that WWAV is performing without a hitch and that we will once again see strong organic growth within the business.

 

POTENTIAL ACQUISITION

Turning onto possible investments in the near future, we continue to see consolidation within the food space, especially with smaller better-for-you brands. It is widely known that WWAV is on the hunt for smart acquisitions, and we believe Quorn would be the perfect fit.

 

Quorn is a meat alternative food producer that leads the market in the UK and has a rapidly growing presence in the U.S. In January it was stated that Quorn had £150mm in sales. Quorn would be a perfect fit into the WWAV portfolio and extend them into the increasingly popular meat alternative segment.

 

We highlighted this potential acquisition in our WWAV Black Book and have become more convinced it would be great for the company after Pinnacle Foods recently reported robust growth in their Gardein business. Plant-based alternative products across all segments are rising in popularity, and meat alternatives is a major segment in which WWAV does not participate at this time. There are a lot of potential targets in this industry but Quorn is currently one of the most recognized with a pre-built customer base. Additionally, Quorn’s UK business is their biggest driver of revenue making it a perfect tack on to WWAV’s Alpro business. This acquisition would yet again add a #1 or #2 player to WWAV’s robust portfolio that is built for consumer preferences that have yet to fully evolve. We continue to be long WWAV and excited about the multitude of acquisition that they can make out in the market.

 

 


ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015

Takeaway: Investors continue to favor international equity funds, which took in +$3.8 billion last week maintaining a perfect inflow streak for 2015.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending July 29th, investors made net withdrawals from most asset classes but continued to allocate to international equity funds with a +$3.8 billion contribution. Investors have made positive subscriptions to international stock funds every week so far in 2015 aggregating to +$88.5 billion year-to-date. The source of funds continues to be domestic equities, with redemptions in 24 of 30 weeks so far in 2015. Year-to-date withdrawals in domestic stock funds now total -$83.5 billion, the worst 30 week start to any year this cycle. Additionally, investors have been backing off fixed income recently with fund flows to total fixed income mutual funds and ETFs having been negative in 6 out of the past 8 weeks.


ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI1

 

In the most recent 5-day period ending July 29th, total equity mutual funds put up net outflows of -$1.4 billion, trailing the year-to-date weekly average inflow of +$166 million and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund contributions of +$3.8 billion and domestic stock fund withdrawals of -$5.2 billion. International equity funds have had positive flows in 48 of the last 52 weeks while domestic equity funds have had only 10 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up net outflows of -$4.7 billion, trailing the year-to-date weekly average inflow of +$1.7 billion and the 2014 average inflow of +$929 million. The outflow was composed of tax-free or municipal bond funds withdrawals of -$88 million and taxable bond funds withdrawals of -$4.6 billion.

 

Equity ETFs had net redemptions of -$1.9 billion, trailing the year-to-date weekly average inflow of +$2.3 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$384 million, trailing the year-to-date weekly average inflow of +$916 million and the 2014 average inflow of +$1.0 billion.

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2014 and the weekly year-to-date average for 2015:

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI2

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI3

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI4

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI5

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI6

 

 

Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI12

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI13

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI14

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI15

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI16

 

 

Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2014, and the weekly year-to-date average for 2015. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI7

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI8

 

 

Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the materials XLB ETF saw the highest percentage net withdrawal last week of -3% or -$65 million.

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI9

 

 

Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI17

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI18

 

 

Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a positive +$998 million spread for the week (-$3.3 billion of total equity outflow net of the -$4.3 billion outflow from fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is +$1.7 billion (more positive money flow to equities) with a 52-week high of +$27.9 billion (more positive money flow to equities) and a 52-week low of -$18.1 billion (negative numbers imply more positive money flow to bonds for the week.)

  

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI10

 

Exposures: The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

ICI Fund Flow Survey | International Equity Funds Batting 1.000 in 2015 - ICI11 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 

 

 

 

 


Early Look

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The Macro Show Replay | August 6, 2015

 


CSLT | 2Q15 Earnings | TOO SHORT AND TOO CHEAP FOR A BEAT

Takeaway: Focus will now turn to 3Q15, the strongest quarter for net new customer wins.

CSLT | 2Q15 Earnings | TOO SHORT AND TOO CHEAP FOR A BEAT - 2015 08 05 CSLT POSITION MONITOR

 

We added CSLT to our Investment Ideas list as Long earlier in the week (Click Here for Note) based on the steep valuation discount to its forward growth rate and data sharing agreement with UNH setting stage for strong bookings growth in the back half of 2015.

OVERVIEW

Castlight Health (CSLT) reported Q2 2015 sales of $18.5 mill, beating consensus estimates of $17.8 mill.  Guidance for 3Q15 of 19.2-$19.5 mill (19.8 mill consensus) was a bit soft due to the implementation timing of sales to existing customers, which comprised a larger than expected portion of 1H15 bookings.  For the full year 2015, management stated they are on track to hit the mid point of their initial 2015 revenue guidance range of $74-77 mill.  With respect to profitability, subscription sales gross margin was 83.0% in 2Q15, a significant improvement compared to 69.6% in 2Q14, and supportive of management's long-term total gross margin guidance of 70-75%.

 

The guidance looks low, given the pattern of beats in recent quarters and our model.  Based on the short interest at 31% and deeply discounted valuation, meeting or slightly beating estimates should translate as a significant positive.

 

CSLT | 2Q15 Earnings | TOO SHORT AND TOO CHEAP FOR A BEAT - 2015 08 06 CSLT Guidance II

 

bookings 

On the new business front, CSLT's 2015 bookings year-to-date have come from cross-sells, which is a positive reflection of the company's R&D efforts. 25% of customers have purchased at least 3 products, with a few signing on for 4 to 5 products. The company only signed 7 net new customers in the quarter (down from 16 customers signed in 2Q14), bringing total customers signed to 181.  Helping offset lower customer adds is a larger average deal size, with the company signing 3 Fortune 500 companies in the quarter.  

 

CSLT | 2Q15 Earnings | TOO SHORT AND TOO CHEAP FOR A BEAT - 2015 08 06 CSLT Customers

 

We attribute the year-over-year decline in net customer wins to sales force disruptions as part of a broader reorganization effort that started at the beginning of the year. However, we continue to believe that the UNH data sharing agreement sets them up nicely for net new customer wins in the seasonally strong back-half of the year.  

 

On the margin, management commentary on the sales effort sounded sequentially more positive on the 2Q15 call, in our view.

 

"Clearly on the new logo front, we saw less new logo addition than we were looking for in the first half of the year but not totally unexpected given the transition of the sales force, and we're really looking to the third quarter to accelerate customer adds and new logos. And we think we're in a good position to do that." - CFO Q3 Earnings Call

 

conclusion

Overall, it was a forgettable quarter with no big surprises.  Attention will now turn to 3Q15, as it is typically the strongest quarter for net new customer wins.  CSLT's success in driving new bookings growth for the remainder of the year will depend on how quickly they can get trained reps out in the field and how effectively they manage the sales force transition from here.  With the stock trading at 46% discount to its sales growth rate relative to peers and 31% short interest, the hurdle is low and appears beatable.  In the short term, we are willing to look past some of the weakness and instead focus on the long-term growth opportunity ahead. 

 

CSLT | 2Q15 Earnings | TOO SHORT AND TOO CHEAP FOR A BEAT - 2015 07 31 CSLT Peer Valuation

 

Please call or e-mail with any questions.

 

Thomas Tobin
Managing Director 

@HedgeyeHC

 

Andrew Freedman

Analyst

@HedgeyeHIT 

 


LEISURE LETTER (08/6/2015) - 880.HK, NCLH, RCL

TICKERS: 880.HK, NCLH, RCL

 

EVENTS   

 

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 

COMPANY NEWS   

880.HK - SJM Holdings Ltd’s chief executive, Ambrose So Shui Fai, has called on the authorities not to ban smoking lounges from casinos in Macau.  
  • “Having smoking lounges inside casinos does not run contrary to the [government's proposed] total smoking ban,” the senior executive of the Macau gaming operator told reporters on Wednesday.  
  • Macau’s Secretary for Social Affairs and Culture, Alexis Tam Chong Weng, who oversees smoking control policies, has said several times that smoking lounges inside casinos are not completely effective in preventing non-smokers being exposed to secondhand smoke.

ARTICLE HERE

  

Paradise Co. LTD - Second quarter net profit for South Korean casino operator Paradise Co Ltd fell 47.1% YoY. Their profit was approximately KRW12.65 billion ($10.8 million) compared to approximately KRW23.93 billion in the year-prior period, the company said in a filing to the Korea Exchange on Thursday.  

  • During the reporting period, the number of “visiting days” by VIP gamblers from mainland China at Paradise Co properties fell 30.7% to 18,854 days, compared to 27,192 days in the second quarter in 2014.  
  • Paradise Co defines VIP visiting days as the daily accumulated number of high roller guests that participated in table games (excluding slot machine guests). In the second quarter 2015, mainland Chinese VIPs accounted for 44.9 percent of the 41,973 VIP visiting days recorded.
  • The rate of YoY decline in the firm’s casino revenue feel 50.2%, it said in a filing on July 6.

ARTICLE HERE

Takeaway: Ugly Q for Paradise, but MERS largely to blame for the slow down in visitation. 

 

Belle Corp. - Belle Corp, an investor at the City of Dreams Manila casino resort in the Philippines, is to raise approximately PHP1 billion ($21.9 million) by selling its remaining 47.85 million shares in Pacific Online Systems Corp to a Belle subsidiary.  In a filing on Wednesday to the Philippine Stock Exchange, Belle said it plans to use the sale proceeds “mostly for debt repayment”.

ARTICLE HERE

Takeaway: This sale comes at a tough time for Belle as they just reported a 50% YoY drop in net profit.  

 

NCLH - Norwegian Cruise Line is sending a new ship to Port Tampa Bay for next year's fall and winter cruises to the Caribbean: the Norwegian Jade.  

  • According to an announcement Wednesday, when the Norwegian Jade arrives in the Tampa Bay area in November 2016, it will sail seven- and eight-day itineraries in the Western Caribbean and 10- and 11-day cruises in the Eastern Caribbean.  
  • "We have strong demand from our guests to sail from Tampa," said Norwegian President and COO Andy Stuart in a prepared statement.

ARTICLE HERE

 

RCL -  TUI Cruises has started to promote its upcoming Asia cruises under the tagline: Book Today, Smile Tomorrow: Asia is Waiting. Sailing from Marina Bay in Singapore, Mein Schiff 1 will be offering series of alternating seven-day cruises to Malaysia, Thailand and Vietnam from November though March.  Rates start at 696 euro per person double occupancy for an inside stateroom or from 1,695 including round trip airfare from Germany. 

ARTICLE HERE

INDUSTRY NEWS 

Chinese Business Travel Market- The campaign against corruption and slower economic growth in the mainland are curbing growth in the market for business aircraft in Greater China, consulting firm Asian Sky Group says.  

  • The firm’s annual report on business jet fleets in the Asia-Pacific region says Greater China’s fleet grew by 59 aircraft last year, having grown by 64 the year before.  
  • Reluctance to spend money caused by the mainland’s campaign against corruption and economic performance will probably keep deterring investment in business aircraft this year, the report says.

ARTICLE HERE

Takeaway: Growth is slowing across most metrics in China. However, per the Ctrip.com earnings call, business travel via high speed rail is showing signs of steady growth, and leisure travel across all transportation methods is equally strong.

 

Macau Property Market - Centaline Macau Property Agency Ltd believes only half as many homes were sold in Macau last month as the month before, and expects the number of sales to keep falling until the end of September. 

  • Centaline director Jackey Shek Po Tak told reporters that the fall was due to buyers and sellers taking their summer holidays and to turbulence in the stock market deterring investment in housing.
  • Shek forecast no immediate decrease in prices and an increase in the fourth quarter of this year.

ARTICLE HERE

 

Singapore Jubilee Weekend - Large crowds are expected at the Marina Bay area during the Jubilee weekend between Aug 7 and 10, due to the many activities held there.  The police said in a statement on Thursday that the Float @ Marina Bay, Esplanade Waterfront Promenade, Merlion Park, Promontory, Marina Bay Sands Waterfront, Gardens by the Bay and Marina Barrage are expected to be crowded. 

ARTICLE HERE

 

LOTTERIES 

 

California - A pilot program by the California Lottery in which gamblers can buy lottery tickets at gas pumps in the Sacramento area is being embraced by players. 

  • “Play at the Pump” lets motorists buy up to $20 worth of Quick Pick tickets when they pay with a credit or debit card at the gas pump. 
  • The program – which started about a year ago in Roseville – has spread to 86 other locations in the region and Southern California. The plan is to expand to about 100 stations. Only California and North Carolina have the option, but other states are considering it.

ARTICLE HERE

Takeaway: Lower gas prices and initiatives like this will continue to drive lottery sales. FY2014 was a banner year for domestic lotteries. 

 

MACRO

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.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%
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