Still great, but not as great as we thought.



We don’t want to take anything away from Genting Singapore’s terrific quarter reported yesterday.  However, after further review, they are not as good as they first appeared.  The positive VIP hold impact was greater than we thought.  Mass also held higher than we thought.  Thus, actual volumes were lower than discussed in our note yesterday.  The upshot here is that normalized EBITDA was S$425 million versus our initial normalized impression of S$450 million.  Including the high hold, actual EBITDA was S$503 million. 


April was clearly the standout month in the quarter and while May and June volumes were weaker, both months benefited from the high hold.  We don’t expect April volumes to be replicated anytime soon.  Here are some additional thoughts:

  • VIP Hold benefit on EBITDA was higher than our initial estimate of S$50MM and was likely closer to S$65MM
    • While the company said that normal EBITDA margins are in the 48-58% range assuming normal hold, we think that normal margins are closer to the low end of that range rather than the mid-point.
    • VIP as a % of gross win was 60% not 64% (as we wrote about earlier)
    • We estimate that RC volume was about S$14.5BN and the win rate was around 3.75%
    • Normal hold is 2.8-2.85%
  • Mass also held above the company’s “normal range” of 16-20%.  We think the benefit of high hold on Mass could have benefited revenues by $20MM.  We estimate that Mass win was approximately $230MM.
  • We estimate that win per EGM/slot was just under USD$800/day or S$1,100/day
  • Non gaming was likely between 12-15% of reported net revenues
    • F&B and other hotel revenues are roughly equal to room revenues
    • Other non-gaming revenues aside from hotel, F&B, and USS include revenues from the car park, retail and MICE business
  • Spend per visitor at Universal Studios decreased sequentially since there were more promotional giveaways in the first quarter.

Model tweaks:

  • 2010:  We estimate that RWS can produce revenues of S$2.74BN and EBITDA of S$1.45BN for 2010.  Treating the UK operations as discontinued starting 3Q2010, we assume the Genting Singapore can do S$3.0BN in revenues and S$1.2BN of EBITDA.
  • 2011:  We project that RWS can produce revenues of S$3.4BN and EBITDA of S$1.7BN.  After corporate overhead, our 2011 EBITDA estimate is S$1.5BN.




As we look at today’s set up for the S&P 500, the range is 17 points or 0.3% (1,080) downside and 1.2% (1,097) upside.  Equity futures are trading below fair value in an erratic morning; there was early strength on the back of strong Q2 German GDP but that has since given way MACRO economic concerns - July CPI and Retail Sales will be in the spotlight today.  Headline CPI is estimated to have increased by +0.2% m/m, and Retail sales to have risen +0.5% m/m.

  • ADVANCE/DECLINE LINE: -436 (+1854) Breadth positive on a down day!
  • VOLUME: NYSE - 1007.39 (-13.48%) - Summer volume for sure!
  • SECTOR PERFORMANCE: Two sectors positive - XLB and XLV
  • MARKET LEADING/LAGGING STOCKS: Office Depot +4.46%, Motorola +4.16 and Cisco -9.38% and Netapp -8.67%


  • VIX - 25.73 1.34% - The VIX now up for 4 days and bearish for equities.
  • SPX PUT/CALL RATIO - 2.98 up from 1.64 surging yesterday (low on 07/15/10 of 0.87)


  • TED SPREAD - 22.54 -0.382 (-1.669%)
  •  3-MONTH T-BILL YIELD .15% Unchanged
  • YIELD CURVE - 2.1661 to 2.2061 (close)  - Now at 2.1786 


  • CRB: 268.91 +0.03% (first up day this week)
  • Oil: 75.74 -2.92%
  • COPPER: 330.55 +0.92% (currently trading at 322 - BEARISH for growth expectations)
  • GOLD: 1,213 +1.38% (safe haven status returning?)


  • EURO: 1.2849 -0.28% - (trading down every day this week)
  • DOLLAR: 82.635 +0.42%) - (trading up every day this week)


  • ASIA - Closed on a stronger note.  Japan closed modestly higher on the day, but closed 4% lower on the week.  China's Shanghai index closed up 1.2% (down 1.94%on the week), as property shares reversed earlier losses triggered after a central bank statement showed a steep drop in new mortgage loans in Shanghai.
  • EUROPE - Markets are trading back below breakeven after a slightly disappointing Italian bond auction offset earlier strength generated by a robust Q2 GDP reading from Germany.  
  • EASTERN EUROPE - Trading mixed to lower - Russia down for the fourth day; Latvia up 1.80%.
  • LATIN AMERICA - Trading higher Peru, Argentina and Brazil and up small.
  • MIDDLE EAST/AFRICA - Trading mixed.

Howard Penney

Managing Director


THE DAILY OUTLOOK - levels and trends 813














Sure, equipment sales were awful but the most important takeaway may actually be positive.



The BYI quarter and guidance was pretty much in-line with our expectations – obviously lowered following the IGT and WMS releases.  The segments were off, however, but in a positive way.  Low international shipments drove a pretty big miss in equipment sales.  Systems beat slightly but the big upside surprise was in gaming operations.  Given the recurring nature of gaming operations revenues vis-à-vis equipment sales, this surprise was a positive one.


Assuming the forward numbers are reasonable, the stock looks pretty cheap, particularly given the 3-5 yeah outlook we see for new markets.  Of course, if the domestic casino markets do not recover and replacements continue to suffer, the slot market recovery will be delayed.  Under this scenario, the casino operators will be in even worse shape.


Here are the details of the quarter:

  • BYI reported equipment sales revenues of $63.5MM and gross margin of $31.6MM, missing our estimate by $7MM and $4MM, respectively
    • Interestingly, the miss versus our numbers was on the international shipments.  Actual international units shipped was 1,225; our estimate was 2,000 units.
    • After IGT and WMS reported, and it became obvious that our initial estimate for replacement units in the quarter were too high, so we took down our NA unit estimate to 2,450. 
    • ASP’s were much better than we expected – out of the top 3, BYI was the only manufacturer to report strong ASP growth
    • Our best estimate (until ALL reports) is that the total shipments to NA in the quarter were approximately 16k, which pegs BYI’s ship share at 16%, up from 13.5% last quarter.  Per usual, Konami’s March quarter market share was inflated.
  • Systems is always a crap-shoot.  Revenues were $0.6MM below our estimate, while gross margins were $1.4MM better. Next quarter will be weak because of timing, but full year guidance looks fine.
  • Gaming operations revenues of $77.4MM and gross margins of $54.1MM, were very solid – beating our estimates by $4MM on both revenue and gross margin.
    • The beat came from better than expected net placement of premium rental & daily fee products
    • Yield also increased due to the mix shift towards premium pay products. Most of the legacy units have a daily fee of $50/day while some of the new products that BYI is releasing have a daily fee of $75/day.  The margins on these products are very high since there is no jackpot funding.
  • Other stuff:
    • SG&A, R&D and D&A were all low… but that was expected
    • The other expense of $2.1MM was FX related and on an after-tax basis, cost BYI 2 cents per share
    • The tax rate of 37.8% was above their normal range of 35-36.5%.  It cost them about 2 cents in the quarter.
    • It would have been nice to see an actual decrease in the share count given that they spent $47MM on buybacks in the quarter.
  • Thoughts on the guidance:
    • Given where stock prices are and the 8 week visibility window on replacements, we think the low end of BYI’s guidance assumes 50,000 industry replacement units, delays and low ship share in IL, some delays in Italy, and very little traction in Australia… the latter 3 are all back-end loaded.
    • While the Street was up at $2.48 for FY2011, we think that the whisper was in-line with the new guidance.

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The Macau Metro Monitor, August 13th, 2010



Marina Bay Sands sees nearly full occupancy this weekend when the Youth Olympic Games opens and high levels of occupancy for the next weekend.  In Singapore, hotel rates have spiked, and the Youth Olympic Games and the Singapore Grand Prix are likely to keep rates high until the end of September.  SA Tours senior executive Dan Lim said: 'It's difficult to get more rooms as all the hotels are almost fully booked. The only way is to try a walk-in booking, or to book through the Internet, which can cost a bit more." However, Singapore's high prices in general, coupled with higher room rates, are shutting out tourists with lower travel budgets.



A division of PBOC reported Shanghai's loans plunged by 11.4 billion yuan ($1.68 billion) to 270 million yuan, 98% lower YoY and 91% lower MoM.  “Because of recent policies on the property market and low transaction volume, individuals’ demand for mortgages continued to contract,” PBOC said.



Macau package tours surged 167% YoY to 489,023 in June 2010, as visitors last year were still influenced by swine flu fears.  Visitors from Mainland China (337,558), Hong Kong (23,357), Japan (22,591) and Taiwan (22,152) rose substantially by 210.6%, 51.5%, 142.3% and 75.4% respectively.


603,004 guests checked in, 35.3% YoY.  The average occupancy rate of hotels and guest-houses rose 15.2% points to 75.7%. 



Per-capita spending of visitors increased 3% YoY to MOP 1,575 in 2Q.  52% of the interviewed visitors in 2Q claimed they had participated in gaming activities during their stay in Macau.  The average length of stay of visitors shortened by 0.2 days to 0.9 days.


According to a Credit Suisse study, higher China urban household income than what was reported in official government data, due to unreportable income from "illegal or quasi-legal activities," could partly explain the soaring gaming revs in Macau.  The report suggested Galaxy would benefit since its Galaxy Cotai project is aimed at the Chinese middle class.

Friday The Thirteenth

“Dude, that goalie was pissed about something.”

-Freeburg (Freddy vs. Jason, 2003)


It’s certainly been an interesting week and its ending with a flurry of shots on goal for global macro risk management net-minders. Sophisticate coaches from Mass call them “net-mind-ahs” by the way. Canucks call dem de goalies, eh.


Today is also Friday the 13th, and de goalies with de coaches who got dem-selves lee-verd up long last week are feeling shame. The most infamous American goalie mask of them all has to be Jason’s. He’s seen a lot of red rubber as of late.


Another American who found fame on this day in 1907 was a stock market manipulator from Massachusetts by the name of Thomas W. Lawson. Ole Lawsy tried to slip one by de goalie back then by publishing a book titled “Friday The Thirteenth”, which attempted to scare the horses into believing that the market was setting up for a crash on that very day (his book sold 28,000 copies in its 1st week).


Per Wikipedia, Lawsy was “a highly controversial Boston stock promoter – he is known for both his efforts to promote reforms in the stock market and the fortune he amassed for himself through highly dubious stock manipulations.” He was a hybrid Barney Frankenstein - fear mongering Americans, then flip flopping his position to the other side of the trade. All the while forgetting that people would remember what he said/did on the last go around.


While stock market futures have whipped around a great deal this morning, the Dodd-Frankenstein reform bill doesn’t appear to be today’s excuse. Germany reported a blockbuster Q2 GDP report (+2.2% sequential growth) and Europe’s “net-mind-ah” has apparently left the building on the news. European markets are being chased lower by the old Friday The Thirteenth fear that we call ‘selling on the news.’


In addition to the week-to-date Nightmare on Wall Street drop of -3.3%, here’s what is legitimately scaring US equity investors (in the order that the data points occurred):

  1. China bought 456B Yen worth of JGB’s (Japanese Government Bonds) in June = most since 05’ (and remains a net seller of US Treasuries).
  2. Goldman Sachs (Jan Hatzius) cut his US GDP growth estimate to 1.9% for 2011 (that’s the closest estimate to Hedgeye’s 1.7%).
  3. Chinese Imports dropped 1100 basis points sequentially in July to 23% (vs. 34% in June) = Chinese demand continues to slow.
  4. Chinese property prices dropped to +10.3% y/y in July versus +11.4% in June.
  5. USA’s NFIB survey for small business confidence hit another sequential low this month dropping to 88.
  6. Bernanke’s QE2 was met with selling of both US stocks and get this, Treasuries!, with this morning’s 2-year yields trading UP versus Tuesday.
  7. China’s bank regulator ordered the transfer of off-balance sheet loans to its books by 2011 (and make provisions for defaults)
  8. US MBA mortgage applications held flat week-over-week, enforcing the reality that Americans refuse to lever themselves up again.
  9. Chinese industrial production, retail sales, and money supply growth (M2) all slowed again sequentially in July versus June.
  10. Chinese inflation hit a 20 month high, accelerating +3.3% in July versus +2.9% in June = oil, food… you know… the things they need.
  11. Venezuelan and Argentinean bond yields pushed higher as their dysfunctional governments try to issue the world sovereign debt.
  12. America’s budget deficit tacked on another $165 BILLION loss in July, taking spending up +10% y/y with tax revenues barely flat.
  13. Russian Bond sales saw only 44% of the demand de goalies in de Kremlin were looking for (25 BILLION Rubles) = Russian bond yield up.
  14. General Disaster (GM) announced their pending $12-16 BILLION Dollar IPO = 2nd largest IPO in US history; what is wrong with America?
  15. US weekly jobless claims ripped higher to 484,000 = representing the highest jump in rolling weekly claims for 2010 YTD!
  16. The Fed’s Balance sheet expanded again week/week going up to $2.33 TRILLION DOLLARS after Ben bought $1.7B more MBS this week!

Sorry, for penmanship’s sake I tried to go with 13 bearish points, but I had to print 16 as pushing Hedgeye’s own book of ideas trumps my literary aspirations.


Look on the bright side, Monday will be a new day for the professional storytellers in Washington and it won’t be Friday The Thirteenth either. By the way, Thomas W. Lawson died poor.


On a fair amount of bearish global macro news, I’ll call the SP500 fairly oversold at 1080 or lower. As a result, we’ll open up the Hedgeye Asset Allocation coffers and move from 70% cash (last Friday) down to 55% on this Friday the 13th, 2010 by going to a 6% allocation to US Equities.


My immediate term TRADE lines of support and resistance for the SP500 are now 1080 and 1197, respectively, eh.


Best of luck out there today and have a great weekend with your families,



Keith R. McCullough
Chief Executive Officer


Friday The Thirteenth - 13


July same-store sale of 8% are some of the best in the industry.


While COSI did not make the kind of improvement in profitability that was hoped for, the top line trends are surpassing all expectations.  The company reported last night that since the end of the quarter, July represented the 5th consecutive month of positive same store sales, up 8%.  It would appear that August will make it 6 straight months. 


For 2Q10, system same-store sales increased 3.1% with franchise sales up 2.6% and company-owned sales up by 3.3% (traffic increase 3.1% in the quarter).  Near the end of 2Q, COSI took a menu price increase which benefitted same-store sales by 0.5% in 2Q.  Going forward, pricing will add 3% to same-store sales. 


The improvement COSI is seeing in the top line is coming from all day-parts: catering, breakfast, lunch, snack and dinner.  In 2Q, sales growth was driven by increases in, and more efficient use of, marketing dollars.  With the help of a new advertising agency, COSI has increased spending on “out-of-store” media to increase awareness of the brand and drive incremental traffic.  COSI also has a newly designed website, menu boards and a new social media team in place to drive the marketing effort. 


For the balance of 2010, COSI will focus on two new sales channels to help drive incremental sales - online ordering and online catering.  In 2Q10, COSI invested in catering a couple of sales people and in store teaching of catering sales to all restaurant teams.


While the improvement in sales is critical, bringing it to the bottom line is an important step.  In 2Q10 there was a balance of banking profits and investing for future growth.  Efforts undergone to increase through put and improve customer service caused labor costs to increase 170 basis points in 2Q10.  In addition, incremental labor was needed to support the increased volume during new day-part hours. 


The COSI turnaround story is on track.  With 3Q10 nearly done and same-store sales running up 8%, profitability looks to be just a few month away.  In addition, with COSI operating around 60% of its store base in 2Q10, there are further opportunities to refranchise more stores, thereby raising cash and enhancing the business model.




Howard Penney

Managing Director

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