LVS Data Set/Color: GGR and forward growth is just fine in Macau, but Vegas is weak
Another day of marginal hedge funds getting crushed out of business on leverage and hedging fails, and the mohawks for the true high flyer stocks is indicated... so no surprise to see these beta names taking in on the chin again. But the real growth stories are screamingly compelling down here at the reset, and the smart guys are on the buy side of the tape while the sale lasts.
Much as we like WYNN and own it now as many times prior, the LVS news makes it clear MPEL is the best positioned company in the business... it is also trading the cheapest on ebitda multiples, especially since, in percentage terms of course, it has the biggest footprint expansion and GGR/adj ebitda and earnings growth (last year and coming) of the group.
WYNN got even cheaper on the next day so we added to the small trading sleeve (unfortunately on the way down at $196), but it all feels good today going into WYNN's report. Steve is a brilliant operator, and given MGM made progress in Vegas, we are confident WYNN will outperform MGM there, even though LVS' numbers sucked in Vegas last Q (again, we don't think LVS was too concerned with Vegas ops -- they are more focused on macau/cotai).
The bigger news on WYNN for us will be tonight's update on Macau. WYNN has long been the most reliant on VIP there, but Steve is also good at ensuring they, similar to Ho's MPEL, are hosting only the top tier tours. We believe WYNN will inform that the VIP business is not only alive and well in Macau, but kicking it there.
That gets us back to MPEL, our largest position. We are confident MPEL is continuing to kick it on VIP, but MPEL is kicking EVERYONE's butt on premium mass and mass play per table, a reality we expect they will continue to do as they have three 5 star properties, and brilliant capture and persistence with China's elite wealthy who come privately (vs with VIP tours) and don't stay/play anywhere but MPEL's properties. It will be great to get Ho's update on VIP next week, too... as well as further updates on when COD Manila will open (late 3Q) and which two additional hotel brands will round out the two already announced (a total of 300 suites for elite players and 967 rooms altogether which will emnable MPEL to define manila Bay IRs) and how things are going on Macau Studio City, their spectacular new cinematically themed property. They told an analyst tour MSC was on schedule last week, shouting down some rumor bs that it was a few months behind it seems. Tower 5 at COD , already THE premier property in Cotai and macau for that matter, is also now bustling with construction underway -- scheduled for opening in 2016.
We'll take an easy rip on WYNN, but MPEL should outperform the group again this year.
Squeeze, old buddy, I'll agree with you that today was a gift to those who understand the business.
But I still think you're not granting Wynn its primacy in that business. Mass is money, but the competition is overwhelming in it, and at some point it's going to lead to a race to the bottom on margin. Same reason all those places on the Vegas strip ended up selling out to MGM and CZR. Macau is the beneficiary of that lesson, and a tighter licensing structure, so it hasn't been fragmented the way the strip was, but economic pressure is economic pressure, and I think that competition cancels out the volume advantage that mass growth has over premium and VIP. I also think Melco's bet on the Philippines is going to weigh on them, but that's not a big factor when Macau is in the discussion.
So I'm staying overweighted on WYNN. If I hadn't been detained by other things today I might already be doubled up. We'll see what Monday open looks like; I fear the Asians are salivating and the gap up will be a painful lost opportunity. Long-term options are cheap relative to estimates, so leverage may be in order.