Wynn Macau (1128.HK) released its annual audited results on March 24th.  There were no surprises but a few interesting tidbits.


While there were no surprises in Wynn Macau's annual filing, there were a few interesting tidbits and details. Below is what we thought was incremental. 

  • Cash split between the various "WYNN" entities:
    • Wynn Las Vegas: $66.4MM
    • Wynn Macau: $674MM
    • Wynn Resorts: $1,251.4MM (wasn't explicit in the 10K filing since the cash was still at the Cayman subsidiary at Dec 31, 2010.  The cash has since been moved to Wynn Resorts)
  • Table mix at Feb 10th 2010: VIP: 196 and Mass: 198.  Wynn increased their VIP table count by 53 and decreased the number of Mass tables by 30 since 2008.  Once Encore opens in April, Wynn will have 233 VIP tables, 222 Mass tables, and 1,200 slots.
  • Mentioned the Cotai site but no real update on timing and scope.  Only detail was that they have submitted an application on a 52 acre site under their wholly owned sub “Palo Real Estate Company.”
  • Junket structure detail: all junkets are on a revenue share agreement and additionally receive a monthly allowance based on % of turnover which they can use towards rooms, food and beverage and other discretionary expenses for their clients.  
  • Credit exposure: Wynn typically advances commissions at the beginning of each month to provide junkets with working capital.  At December 31st, Wynn’s aggregate exposure to their junkets, comprised of the difference between the advances and commissions payable, was HK$127.7MM ($16.5MM USD).
  • Wynn’s adjusted EBITDA was $418MM after royalty fees and corporate expenses paid to the Wynn Resorts, but before any preopening or share based compensation.  Wynn Resorts reported Wynn’s Macau’s EBITDA as $502MM.
  • Junket commissions: Wynn’s all in commission rate was 1.25% or a revenue share percentage of 43.1% in 2009 compared to a commission rate of 1.2% or 40% in 2008. The all in commission rate is calculated as the sum of reported commissions and discounts recorded as a reduction to revenues, junket commissions recorded as an operating expense, and the promotional allowance for non gaming revenues over VIP turnover.  Revenue share % is calculated as the commission rate divided by  the hold percentage. 
    • As we've written on several occasions, we are concerned that junket commissions may be headed higher. Commission caps only regulate fixed commissions but not revenue share agreements.  We've heard that SJM is being aggressive on this front, albiet using a different franchise model, to go after market share and that MPEL is increasing commissions as it struggles to grow its VIP business at CoD.


  •  Cash Flow: Wynn generated $583MM of cash from operations (HK$4,517.2MM). Wynn had a large working capital benefit that helped 2009 cash flow.

Below is a summary of Wynn's Macau's valuation and our updated estimates.




The Macau Metro Monitor, March 26th, 2010



DSEC reported Macau's unemployment rate stood at 2.9% in the December to February period, down from 3.0% in the November to January period. In Dec 2009 - Feb 2010, the total number of unemployed persons decreased by about 300 from the previous period to 9,200, with 8.6% of the total being fresh labor force entrants searching for their first jobs. Total labor force was 322,000 in December 2009 - February 2010 and the labor force participation rate stood at 71%. Analyzed by industry, employment of the Retail Trade increased from the previous period, while that of the Restaurants & Similar Activities registered a decrease.


Yesterday, the S&P declined 0.17%. Though the uptrend remained intact, we saw a serious late-day reversal on Thursday. The waning upside momentum and negative internal divergences are catching up with the market; the Hedgeye models now have Energy (XLE) and Utilities (XLU) broken on TRADE AND TREND.  On the margin, the markets did have more support from the MACRO data flow.  Volume was up 13% day-over-day.


A better than expected jobless claims number provided more evidence for the RECOVERY trade.  Initial claims for the week ending March 20th were 442,000; lower than consensus 450,000 and down from the prior week’s revised number of 456,000. This is the lowest level in six weeks.  The 4-week moving average was 454,000; down from a revised prior week number of 465,000.


As our Financials analyst Josh Steiner noted yesterday “It is worth noting that the seasonal adjustment factors were updated this past week, as they are annually, which had the effect of lowering claims by 10,000 more than they would have been under the old methodology.  We think it's also worth noting that while the rolling average claims remain outside our 3-standard deviation channel, the one-week claims data is now tracking the high side of our channel suggesting further improvement ahead. We continue to expect to see a claims tailwind throughout the spring months (April, May) as census hiring picks up and weather-related effects dissipate.”


European Central Bank President Jean-Claude Trichet endorsed an aid plan for Greece, toning down his opposition to IMF involvement.  Disagreement over Greek aid, coupled with a downgrade for Portugal’s credit rating, has fueled concern that the European sovereign debt issues will undermine the RECOVERY trade.


Yesterday, the best performing sector was the Consumer Discretionary (XLY) and we shorted it.  At the highest prices we have seen in the US stock market since 2008, we are now shorting what's has been THE PAIN trade the entire way up: short the US consumer.  Helping the XLY was positive performance by the retailers (BBY and LULU) and a more positive outlook on employment driven by the jobless claims data.  AMZN and PCLN were the two best performing stocks in the XLY.


For the fourth day in a row, the Financials (XLF) outperformed although dropping well off their highs in the last hour.  Bernanke’s testified yesterday that his free money policy will continue as the “economy still requires accommodative monetary policies.”  The banking indexes (BKX) lead the way again driven by the larger money center banks; the regional’s underperformed the sector. 


The Dollar index had another strong day improving 0.34%, but is trading down slightly in early trading.  The Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy Trade (80.69) and sell Trade (82.32).  The strong dollar is putting significant pressure on the REFLATION trade, as the CRB is broken on TRADE and TREND.   Materials (XLB) and Energy (XLE) were the two sectors that were down the most yesterday. 


While the VIX remains broken on all three durations - TRADE, TREND and TAIL - it has improved 12% over the last two days.  The Hedgeye Risk Management models have levels for the Volatility Index (VIX) at: buy Trade (15.98) and sell Trade (18.60). 


In early trading oil is trading higher for the first day in the last three as the dollar weakens.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (79.55) and Sell Trade (81.49). 


Gold prices are trading higher in early trading for the second day in a row.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,080) and Sell Trade (1,120).


In early trading, copper is trading higher on lower weekly Chinese stockpiles.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (3.35) and Sell Trade (3.42).


In early trading, equity futures are trading above fair value and near session highs in an attempt to reverse the sharp selloff into the close yesterday.  As we look at today’s set up the range for the S&P 500 is 25 points or 1.3% (1,151) downside and 0.9% (1,176) upside. 


Today's MACRO highlights are:

  • GDP (Q4 3rd read)
  • U. of Michigan - March final


Howard Penney

Managing Director













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Some tidbits we’ve picked up recently.  LVS good (hold), WYNN not so good, MGM bad.




  • Business is slow aside from room bookings around events…won’t see a pick up until 2H2010
  • Problem is that the lower end properties are giving rooms away and dragging everything down
  • Weekends are good. Weeknights are filling with unemployed people
  • Feb should be up for the Strip – as we wrote about in our 3/23/10 post “FEB STRIP REVS COULD BE POSITIVE”
  • High end play continues to be the only gaming bright spot, driven by strong Baccarat play
  • Cosmo may bleed into next year opening wise, which shouldn't be a surprise as the opening has already been pushed back to "late 2010"


  • 1Q will be an ugly quarter, 2Q will probably be as well – we are expecting a miss and need to lower our numbers
  • Occupancy in the high 80’s/low 90’s
  • No longer saying that they can hold rate… but even discounted convention business or business travel is better than the unemployed visitors today – even at $50 per night
  • 20-25% of occupied room nights come from convention customers, however those customers generate 30-35% of their revenues
  • 60-70% occupancy mid week at CityCenter and they have zero convention business so far. Weekends are high 80’s low 90’s.
  • High end play is good – all on Baccarat (volume wise)



  • LVS could put up a $100MM EBITDA quarter in Las Vegas due to high hold percentage – we need to raise our $90 million estimate
  • Convention business is doing ok – better than last year but that is not saying much



  • Wynn continues to struggle like everyone else
  • High end play is good but still very reliant on room rates.

Walk-in Closets and Consistent Deflation

Walk-in Closets and Consistent Deflation


One of the few categories of goods or services that has been consistently deflationary for decades is apparel and footwear.  Whether this is good for the industry or the companies we watch day in and day out is debatable, but one thing is sure.  Apparel and footwear is the most affordable it has EVER been when measured as a percentage of personal disposable income.  Thankfully, this keeps consumers from running around naked and keeps those with big closets happy.  While none of this is new (after all spending on apparel as a % of income has decreased in 20 of the past 22 years) , it’s still eye opening to take a look at the trend over time and consider how affordable clothing and footwear has become. 


Walk-in Closets and Consistent Deflation - Clothing Expenditures Share Historical


Global competition, technology advancement, and productivity gains have all been key drivers of deflation across the space for years.  The question now is how much lower can prices actually go?  It’s hard to envision retailers like Old Navy, H&M, Target, Wal-Mart, and even Aeropostale finding much more room to drive prices lower with sufficient demand elasticity.   On the other hand we’ve created a society of hoarders, consumption junkies, and walk-in closets. 


Walk-in Closets and Consistent Deflation - CPI History


Eric Levine


Frau "Nein"

With Germany’s Chancellor Angela Merkel leading the debate on Greece’s debt bailout via the IMF rather than a European-led endeavor (a stance counter to her French counterpart Nicolas Sarkozy), she recently earned the title of Frau “Nein” by the European media.  While Merkel’s stance is fiscally rooted, politically she also wants to avoid tapping into German coffers, an important point as confidence in her party’s management toward the return of economic growth has waned in recent months.


As we get more vocal on owning quality on the long side (own High Grade Versus High Yield) in the face of domestic and global PIIGS, Germany’s fiscal conservatism continues to be a factor we’re bullish on. And recent German fundamentals suggest a favorable environment of low inflation, with CPI registering +0.5% in February Y/Y [versus +3.0% in the UK and +2.1% in the US] and lower input prices benefiting Producers, with PPI at -2.9% in Feb. Y/Y [versus +4.1% in the UK and +4.4% in the US].


While exports took a dive of -6.3% in January sequentially, we’d expect the weakness in the EUR versus the USD (EUR is down 6.8% versus the USD YTD) to benefit exports in the months ahead. As an aside, consensus is clearly now short the Euro; we’d guide to TRADE the range in a narrow band – buy/cover at $1.33 and sell/short at $1.36.


Additionally, over the last two days we received German business and consumer sentiment surveys. Although we don’t put our chips on surveys alone, the charts below show (consensus) trends. IFO’s business survey is making higher highs since early 2009, confirming margin improvement and global demand acceleration. On the consumer front, the fear of unemployment remains a dominating force, underlining the sideways trend, despite unemployment holding stable at ~8.2% over the last months. 


In terms of German stocks, our intermediate term TREND line of support on the DAX is now 5791. The DAX is building another bullish long term base.


Matthew Hedrick



Frau "Nein" - G1


Frau "Nein" - G2


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