• It's Coming...

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

We had a conversation with Genting Singapore management last night and our notes are summarized below.

Management seems to be trying to manage expectations for the quarter.  They are aware that the stock has gotten “expensive” and want to make it clear that they don’t see a ton of growth on the gaming end of things until there is clarity on junkets getting licensed.  We think their comments may be posturing and “managing expectations” because there should be some growth even without junkets.

  • Q3 tends to be the slowest period in Asia.  August is called “Hungry Ghost Month” for the Chinese in Singapore as they don’t really do much that month and this year, it also corresponded with Ramadan.  This holds true for their lodging and casino business.  Usually Q1 & Q3 are the weakest quarters and Q2 & Q4 are the strongest.
  • Flat earnings is the goal for Q3.  Although we pointed out that that would imply an increase sequentially and that if trends were truly flat, then things should be down and they agreed.  We’re a little confused on what they are trying to signal.
  • Universal is continuing to run at 8,000 capacity until they open their 2 new rides in the 1Q2011.  Given the existing rides, they can’t increase capacity without making the queue lines too long.  They are currently sold out every day.  Otherwise the queue lines will be too long.  Once Journey to Madagascar and Battlestar Galactica open, they will be able to run at full capacity – 12-13k/day.  They won’t be able to run at full capacity (25k) until Transformers opens and they don’t have a date set yet for that ride - although they are thinking late 2011/early 2012.
  • Won’t comment on any client activity (i.e. the articles about rich businessmen losing lots of money at the 2 IRs).  Henry Kwack – already settled with them though. The media tends to sensationalize the rest.
  • On the gaming side - thinks that things are getting a little softer – especially on the Mass market where people are trying both casinos. Some of the novelty factor is wearing off.  Expect Mass Market to flatten out for the next few quarters and don’t expect the VIP market to grow until the junkets get licensed.  They have sponsored about 20 junket applications.  Some of them have moved onto the interview stage. Should be hearing from the government on licensing by early next year.  As far as they know, Sands doesn’t have any junket applications pending.  Since the licensing process takes 12-16 months, even if Sands wants junkets, they will be about a year behind RWS.
  • 3Q2010 results will be published on Nov 11th
  • Expect Q3 to be 50/50 VIP/ Mass
  • They are indeed taking on more risk than usual on the credit side since they don’t have junkets. When their junkets come into the market they will give them 1.4% all in commission rate. They aren’t experiencing substantial collection issues.  Giving 90 days credit.
  • The impact of Golden Week is a lot more pronounced in Macau than it is in Singapore given that it's driven by Chinese players.  It’s not as “off the charts” as Macau.  38-40% of business from Malaysia, followed by Indonesia, HK/ China.
  • If there are no junkets, they think that growth will come mostly from non-gaming. 
  • MBS rumors:  Big issue they have is that they don’t understand the market as much as RWS does.  Have a little problem with accessibility – infrastructure around the area is still being developed and it’s very hard leaving the casino – there just aren’t enough cabs.  Thinks that they have management issues – there have been a lot of changes on the senior level. 
  • Think that in the 3rd quarter they will still have a slightly larger share than MBS - but it will even out by 4Q2010/ 1Q2011.