MPEL should miss badly but that isn’t exactly new news. What will matter is the balance sheet issues and whether share can improve after a tough Q4 to capitalize on the strong market trends here in Jan.
We see a big miss for MPEL this quarter, largely driven by poor hold (and poor sell-side modeling of hold) at both Altira and City of Dreams. Our $406MM revenue estimate and $23MM EBITDA estimate are respectively 42% and 20% below consensus estimates. This miss probably won’t be a surprise since MPEL is down 25% since early December.
One major focus will be the balance sheet where MPEL needs to communicate its refinancing plans. Also, investors will want to know whether MPEL’s dreadful Q4 market share has improved in January and whether City of Dreams has figured out how to drive the Mass business. Macau gaming revenues are up 67% through January 20th which could be a positive for MPEL assuming its market share didn’t deteriorate further. The negative will be if the VIP segment cannot withstand the slowing China economy, down stock market, and tightening liquidity. These macro variables are hugely significant in driving VIP play.
4Q09 ESTIMATES:
City of Dreams
- Net revenue of $243MM
- EBITDA of $22MM
- RC volume of $8.6BN and 2.5% hold
- Mass drop of $450MM and 17% hold
- Slot handle of $315MM and 6% win percentage
- Net casino revenues of $236MM, $23MM of non-gaming revenues and $16MM of promotional expenses
- Variable expenses (primarily taxes & junket commissions that aren’t recorded in net revenues) of $156MM, $7MM of non-gaming related costs, and $57.5MM of fixed costs (remember that Hyatt should be fully open so there should be a step up in fixed costs from last quarter)
Altira
- Net revenue of $138MM
- EBITDA loss of $6MM
- RC volume of $8.8BN and 2.3% hold
- Mass drop of $62MM and 15% hold
- Net casino revenues of $136MM, $7.6MM of non-gaming revenues and $6MM of promotional expenses
- Variable expenses (primarily taxes & junket commissions that aren’t recorded in net revenues) of $120MM, $2.5MM of non-gaming related costs, and $22MM of fixed costs
Mocha Slots
- Net revenue of $25.4MM
- EBITDA loss of $6.7MM
Other
- Net interest expense of $19.6MM, up materially from last quarter due to MPEL no longer being able to capitalize costs for CoD
- D&A of $74MM
- Pre-opening expenses of $5MM
“YOUTUBE” FROM Q3 RELEASE/CONF CALL
Mass Market / COD ramp/ Present business
- “The area where we have some heavy lifting to do to drive growth and improvement is in the grind mass-market business at City of Dreams. Although our growth trend in this segment continues to improve, we have not gotten close to our full potential yet. We are not going to provide our detailed marketing play-book in this area, but we have a clear plan of attack to boost awareness of the mass gaming experience at City of Dreams, which will drive visitation, length of stay, and, of course, profitability.”
- “We believe we'll end up with 2009 being 5% to 10% ahead of 2008 in GGR terms and we expect next year to deliver a top line growth of around 20% with limited additions in new supply.”
- Our direct -- premium direct VIP businesses at City of Dreams is….17%, life to date.
- Our math suggests that it was just north of 11% through 3Q09, and we assume 12% for 4Q09
Guidance/ Outlook
- Response to lower market share in Oct 2009
- “ We had lower hold on the rolling chip side across both properties in the month of October, as compared with the previous quarter…. also, October, remember, is a month that is distorted, particularly in the first week, the holiday week, towards the mass segment, so any month that is strong because of holiday periods, you're going to see that distortion downwards.
- “We're probably looking like we're seeing better volume in November against October and that's against the background of a market that looks like it's grown north of 50% over the course of the first two weeks of November.”
- November Junket RC volumes were up around 58% y-o-y for the market as a whole. However, RC in Nov was lower for MPEL than the volumes they saw in Oct. Mass win does look like it increased nicely month over month in November
- “We're not going to provide any forecast in terms of the volumes that we expect to see in any segment of the business, not least of which because do one segment and it's not really a complete picture. But we've seen an improvement in the volume of drop that we have at City of Dreams of more than 35%, nearly 40%, if you look across the five months that we've been open as a property.”
- “We would certainly expect to see our hold move from 16% up towards 18%, and the properties that are performing at the most efficient level in Macau are indicating that you can hold up to 20%, 21% on the mass side. So that's obviously a future target for us.”
Other (Cash flow/ Balance sheet/ Costs)
- “We've got about $1.7 billion drawn on our facilities; we won't be drawing any more of the capacity that is there. And we've already banked about $300 million in our balance sheet off the back of a couple of equity placements that we did earlier this year that will be used at some point during the earlier part of next year to effect an accelerated repayment of those facilities.”
- “Construction of City of Dreams is essentially complete with the recent opening of Grand Hyatt Macau. We expect to outflow approximately $115 million in closing out final accounts on the site during the course of the fourth quarter of this year… the remaining $40 million are really retention payments that apply to the warranty periods on the various construction contracts and they won't get settled until the early part of the second half of next year in the main. As we then look forward into 2010, there's about another $40 million of CapEx that is primarily associated with the final fit-out of the Dragone Theater. That equipment will arrive in Macau in early 2010 and so we'll pick up and be settling that cost during the course of the first half…. We've then put in place a program of additional CapEx expenditure that runs through 2010….roughly in the order of $40 million to $50 million, which is basically an application of what you would normally expect in the first full year of maintenance CapEx. But because we're under warranty periods, we'll push it into new developments, new amenity development.”
- “MPEL-wide cost structure of approximately $1.3 million a day, and that obviously includes City of Dreams, Altira, Mocha, and our centralized and corporate costs. With the addition of the Hyatt property and its staff during the course of the last few weeks, that amount has increased by approximately $75,000 a day, so we're up to a little bit shy of $1.4 million per day.”