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THE M3: LVS AND GALAXY

The Macau Metro Monitor. November 11th, 2009

 


LAS VEGAS SANDS TO RESTART MACAU PROJECTS wsj.com

LVS plans to begin preliminary work in January to restart lots 5&6.  At 13.3 million square feet of net developable area, the new project would be even larger than the Venetian Macau.  The company says it needs around $2 billion to finish the halted portion of the projects; thus far the company has secured financing from banks of around $1.45 billion. 

 

A person “familiar with the matter” disclosed that the company plans to use roughly $500 million the proceeds from the upcoming IPO to finance Macau construction. 

 

 

 

GALAXY ENTERTAINMENT: DELAYED COTAI RESORT TO OPEN 1ST QUARTER 2011 wsj.com

Casino operator Galaxy Entertainment said Wednesday its HK$14.1 billion (US$1.81 billion) flagship casino resort in Macau is scheduled to open in the first quarter of 2011.  The opening has been delayed for one year.  Galaxy has already committed HK$5.1 billion to the project, named Galaxy Macau.  The company is not considering a share placement as a means to raise the capital needed to complete the financing for the project.  The company plans to release details on its financing plans for the project within 45 days. 


WEN - CORRECTION

 

 

On November 8th we posted a note titled “A Busy Quarter Indeed,” in which we erroneously attributed earnings release information to Wendy’s International (WEN).  The earnings information in question was that of Trian Acquisition Corp, Inc. (TUX).  There is an existing business relationship between Wendy's and Trian Fund Management L.P., however our report was a simple error.  No conclusion or inference should be drawn from it regarding any relationship or transaction between the entities. 

 

We apologize for any confusion this may have caused.

 

Howard Penney

Managing Director

 


Deng is Smiling

Research Edge Position: Long Chinese Yuan via etf CYB

 

Deng Xiaoping is the now deceased Chinese leader who took over the reins of China after Chairman Mao.   While Deng never held office as head of state or head of government, he did serve as the Paramount Leader (a Chinese expression for the leader of the party and country) of the People’s Republic of China from 1978 to the early 1990s.  Deng was of course known for implementing market based reforms.  In referring to economic policy the diminutive Deng once stated:

 

“It doesn’t matter if a cat is black or white, so long as it catches mice.”

 

His point was that if market based policies could expand the growth of the Chinese economy, then those were the appropriate policies to follow.

 

In 1978, China’s GDP in real terms was ~$147BN and it ranked eleventh in the world, while the United States ranked first at $2.3TN.  According to the IMF, and most other data sources, China is now ranked third globally with a GDP of $4.3TN, which is an increase of 292x in thirty years.  The United States’ GDP is now $14.2TN, which is an increase of 14x over the same time period.  Clearly, Deng would be smiling at this massive global GDP share gain over the last thirty years.

 

In recent days, we have seen continued evidence of the engine of Chinese growth, and the power of its stimulus program as it relates to car sales and home sales.  The Chinese consumer continues to power through the global downturn.  In October, Chinese passenger vehicle sales rose 76% y-o-y last month with a sales number of 946,400In total, this brings the year-to-date sales to +45.2%.  The test for car sales will of course occur at the end of the year, when stimulus measures, such as car tax cuts, expire.  The Chinese central bank also reported today that the prices of houses sold in 70 major cities rose 3.9% y-o-y, the highest rate in 14-months.

 

While many still question the impact of the U.S. stimulus program, except for the those on Wall Street who are benefitting from the Banker Bonanza, the Chinese seem to have gotten their stimulus package right, as their consumers are spending.

 

We remain long the Chinese Yuan as it seems likely that the Chinese government will continue to let their currency appreciate over time, as well they should given the relative strength of the domestic economy.

 

The Ox seems to be catching mice.

 

Daryl G. Jones
Managing Director

 

 


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A Bearish German Expectations Report

Research Edge Position: Short the UK (EWU)

 

The ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict economic conditions six months ahead, fell to 51.1 from 56 in October, underperforming a forecast for a decline to 55. 

 

While we have some reservations on the accuracy of the ZEW survey, we have cautioned over the last weeks that we expect to see a sequential deceleration in improvement in German and European fundamentals with headwinds including the rate of improvement itself, a strong Euro, and rising unemployment as we move into 2010.

 

The chart below of the investor and analyst expectations shows evidence of a top, with the last two months in decline.  ZEW’s gauge of the current economic situation however rose to -65.6 from -72.2 in October.

 

Today’s announcement from the survey sent the DAX in retreated. Yesterday morning we sold our position in Germany (via the etf EWG) into a strong open to book a modest gain in our model portfolio. The DAX recently broke its TRADE line, but the TREND and TAIL durations remain bullish, so we’ll look to buy EWG back on weakness.  

 

Despite the sale and survey, within the Eurozone we continue to like Germany and expect that its large industrial and manufacturing base and export-driven economy will benefit alongside global economies melting up. Yesterday, two bullish data points were released: German exports rose 3.8% in September month-over-month and German Industrial Output increased 2.7% in September compared to the previous month. Finally, today October CPI held steady at a comfortable level of -0.1% Y/Y. Stay tuned.

 

Matthew Hedrick

Analyst

 

A Bearish German Expectations Report - wohl

 


Chart of The Day: Covering The Bombed Out Buck

Is consensus on the US Dollar finally Bearish Enough?

 

Now it might be. When I re-shorted the US Dollar on October 20th, my answer was no. Everything has a time and price.

 

There are plenty of negative catalysts for the price of Burning Bucks that are now in the rear-view mirror:

  1. Bernanke - pandering to the political wind last week, keeping rates at an “emergency rate” of ZERO percent
  2. G20 – no one trusts Geithner or his suggestion that countries “take a chance again on the American economy”
  3. US Employment – that was a nasty report on Friday

However, in my risk management model at least, sometimes the best catalyst simply is price.

 

In the Chart of The Day, Matt Hedrick and I show a Bombed Out Buck price of $75.01 on the US Dollar Index. Do not mistake our call to cover our short position in the US Dollar for anything other than what it is – an immediate term (3-weeks or less) TRADE call.

 

The Bearish Formation (negative TAIL, TREND, and TRADE) for the US Dollar remains. But +1-2% rallies in the Dollar can wreak havoc on anything priced in dollars.

 

We’ll be outlining our views of price and duration on our long standing Burning Buck investment theme on our Macro Strategy Conference Call today, at 1PM EST. If you need access information for this call, please email .

 

Keith R. McCullough
Chief Executive Officer

 

Chart of The Day: Covering The Bombed Out Buck - zeebuck

 


MPEL: HOLD WILL DRIVE GOOD Q3

MPEL should report a consensus beating Q3 on Thursday.  However, the properties played lucky and October market share came back to Earth. Is that reason enough for a 37% sell-off since late September?

 

 

We are projecting Q3 EBITDA of $67 million for MPEL versus consensus of $55 million.  It’s no secret that City of Dreams (CoD) held very well in the VIP segment during the quarter.  We estimate a hold percentage 40-50bps higher than normal which boosted EBITDA by approximately $15 million.  As a partial offset, Altira held a little low.  We believe that company EBITDA will be in-line with consensus when adjusted to normalized hold.

 

Unfortunately for shareholders, the recent focus has been on market share in October when MPEL lost approximately 5% from Q3.  Most of the market share loss was concentrated in VIP since Mass share declined only 30bps from Q3.  In the VIP segment, MPEL held poorly in October versus very strongly in Q3 so share loss was magnified.  Indeed, in looking at just VIP turnover (chips), the market share loss was less than 3%.  On a sequential basis, October exceeded each of the Q3 months in terms of Mass revenue and VIP turnover so business is not exactly bad for MPEL.  The charts below show the picture.

 

The takeaway:  Q3 wasn’t as good as it appears but October wasn’t as bad.  Meanwhile, the stock is down 38% since late September.  The carnage seems a bit aggressive, particularly given the huge valuation discount to Wynn Macau (1128.HK) at 16x 2010 EV/EBITDA and the stated range for the LVS Macau IPO which we estimate to be 13x-17x.  In contrast, MPEL is trading at 11x our 2010 EV/EBITDA projection.  While a discount valuation is appropriate but the current spread seems excessive.

 

MPEL: HOLD WILL DRIVE GOOD Q3 - MPEL total rev2

 

MPEL: HOLD WILL DRIVE GOOD Q3 - mpel mass rev1

 

MPEL: HOLD WILL DRIVE GOOD Q3 - mpel vip turnover1


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