CLSA forecasts that Macau’s annual gross gaming revenue will rise to US$90 billion (MOP719 billion) in 2018 from US$45 billion last year, Bloomberg reports.
The news agency quotes the stockbroker as saying the opening of new casinos in Cotai will make gaming revenue surge.
“Macau is an oasis in the parched global growth environment, delivering a constant stream of expansion,” CLSA says in a note on Macau’s gaming industry.
“Its large mass-market exposure and strong premium mass[-market] focus should continue to drive near-term growth."
CLSA's forecast is similar to ones I've read before. Making it all the more difficult to reconcile the perfromance of the gaming sector's stocks with their financial results. LVS being the most recent case in point. They beat already raised estimates, get a few TP increases from analysts, say they see no slowdown in the biz, and the stock is promptly sold off.
From what I hear on CNBC there is a rotation going on out of growth/momentum stocks in to value. I certainly understand the desire to divest from high multiple stocks or ones trading on a multiple of sales rather than earnings. But the gaming stocks are not high multiple stocks. MPEL trades @ 16x 2015 EPS. They, as do all the gamers, generate a monster amount of FCF. They pay a dividend, they may start buying back stock. Revenue, to be shared by the 6 Macau concessionaires, is expected to double in 4 years. These are the characteristics of stocks whose multiple should be expanding, not contracting.
Group think on Wall St. is a powerful phenomenon, one you shouldn't get in the way of. Currently, it is causing money to come out of anything labeled growth or momentum, regardless of whether there is any merit to it. Now that the market has broken these stocks further selling is being justified by technical analysis. Maybe the gamers will be taken down to a point where their multiples get so low they will be viewed as value stocks, giving the group thinkers permission to buy them again. In the meantime I'm still buying the dips.
I need no convincing about China's economy. Apparently, neither do virtually any of the sell-side boys following the Macau stocks. Because despite the woes of LVS in Vegas and less than stellar growth seen in Singapore earnings estimates for LVS, and TP's, continue to go up. The observations being made on CNBC haven't singled out growth stocks related to China by citing concerns about GDP there. They have been about growth stocks across the board. I can't help thinking the MPEL's and LVS' of the world have been lumped in with growth/momentum (those stocks being rotated out of) because otherwise there simply is no rationale that makes sense for them to have been sold off. Valuations are low and never got remotely out of hand.
Macau had 624,588 visitors during the Easter holidays, 27.2 percent more than in the equivalent period last year, official data show.
The police say about 1.89 million people entered or left the city between last Friday and Monday.
The busiest point of entry or exit was the Gongbei border crossing, where 660,248 people entered the city and 685,810 left.
Number of mainland travellers to Macau went up 23.6 pct y-o-y in March due to the ripple effect of the new mainland tourism law implemented last year
Last month, Macau saw its fastest growth in the number of mainland Chinese tourists in 28 months, as more mainlanders opted to visit now having delayed travel plans since the implementation of the new tourism law, suggests an industry figure.
The Statistics and Census Service announced yesterday that the number of visitors last month shot up by 10 percent from the previous year to 2.63 million.
The number of visitors from the city’s largest tourist source, mainland China, surged even faster at a rate of 23.6 percent to nearly 1.77 million, accounting for 67.4 percent of the total number of March travellers.
The 23.6-percent jump is the fastest growth in the mainland market since November 2011, when the territory saw a 33.2-percent surge in the number of mainland tourists.
Travel Industry Council of Macau president Andy Wu Keng Kuong reasons: “March is usually a quiet season for the tourism industry but there was an exception this year, as fewer mainlanders went travelling in the past few months following the implementation of the tourism law last year.
Because I think you probably have this info committed to memory (and because I'm lazy) could you lay out the share ownership of MPEL or at least give us a rough figure of how much of the public float could be taken out of circulation if, theoretically, they bought 10% of OS. Thx.
Thanks for the info. According to the tute share ownership on the NAZ site, as of 12/31/13 it showed approx. 137M shares owned by funds. Obviously those guys may be adding or selling during any given quarter. But a 10% (or even 8%) buyback is going to make the public float pretty darn small. The fact it's already fairly small explains some of the high beta it has. Meaning when the turn comes there is going to be better demand for a shrinking commodity, MPEL shares.
The messages the buyback sends are 1. we are highly confident in the amount of our future FCF generation 2. we see extreme value in buying at the current level 3. if you thought we needed to issue equity to finance future projects think again.
As you say the material effect is a higher divi payout and higher EPS.
If anything the story is more compelling now than it was when the stock hit $45. Made so by increasing mass visitation, stable if not slowly growing VIP roll, a Chinese economy that will be stronger once reforms take hold, the fact that their strength is mass and premium mass which returns higher margins and is growing 3x faster than VIP, and as we have noted many times before.......the imminent expansion of their footprint.
Then there's this from IBD.
Although investors worry about less-robust growth in China, several U.S. corporate giants hailed Q1 demand in the world's second-largest economy.
China has proven to be a strong engine for Apple (AAPL), with its new partner China Mobile (CHL) helping push fiscal Q2 iPhone sales to more than 43 million, far more than expected. The $9.2 billion that China added to Apple's coffers comprised nearly 25% of the company's total quarterly revenue, up 13% from a year earlier.
Caterpillar (CAT), the giant construction-equipment manufacturer, has struggled with a global commodity slump that#$%$ mining-equipment demand. Overall sales were flat — actually ending a five-quarter decline.
But China sales rose 30% vs. a year earlier. CEO Doug Oberhelman credits increased dealer deliveries and the favorable impact of dealer inventory changes.
Economic growth in China of around 7.5% this year "should support improvements in the machine industry and increase commodity demand."
Yum! Brands (YUM), parent of the KFC, Taco Bell and Pizza Hut restaurant chains, says that its China-division sales grew 17% year over year, with restaurant margins increasingly almost 7% and operating profit up 80%. Yum adds that it expects to open at least 700 restaurants in China this year.
The company is seeing improvement from a year earlier, when a chicken health scare scared jittery diners and investors. CEO David Novak cited KFC in China as "the most significant driver" of Yum's strong bounce back in the first quarter.
Global casino giant Las Vegas Sands (LVS) topped Q1 forecasts Thursday, with strong growth in earnings and revenue driven in part by Sands Macau, its majority-owned unit in China's gaming mecca. Sands Macau revenue climbed 35%, and net income rose 66%. More than 17 million visits to its Macau facilities during Q1 delivered a record $939.8 million of adjusted property EBITDA (earnings before interest, taxes, depreciation and amortization), said CEO Sheldon Adelson in a statement.
Macau GGR checks and other quick thoughts
According to checks, April Macau gross gaming revenue (“GGR”) is on a run-rate to end at +~7% year over year (“YoY”). As expected, Macau’s week-over-week GGR declined ahead of the 3-day Golden Week holiday, which begins May 1. We tighten our April forecast to between +5% and +8% from between 5% and 10%. Our May YoY GGR outlook calls for an acceleration from April, and is between 10% and 15% YoY.
Trends. As of April 27, table-only GGR is MOP26.3b (USD$3.2b), according to sources. Table-only GGR declined ~15% week over week. This is unsurprising given the upcoming 3-day Golden week holiday beginning May 1, when GGR is expected to accelerate.
A look at May. Over the last 9 years, May GGR has averaged 11.3% higher than April. In CY11, May climbed 18.5% higher than April, though Galaxy Macau opened that same month. In CY12, May was down 1.5% from April – CY12 marked the first year May’s Golden holiday was reduced to 3 days from 7 and it was up against the difficult Galaxy Macau opening comparison. Last year, May was +4.5% from April. Over the past 8 years, May’s GGR range from April has been between -1.5% to +20.4%.
LVS Macau results. Macau EBITDA was $939.8m versus consensus of $871.7m, but hold-adjusted Macau EBITDA was $864.8m, or +37% YoY. While some cite LVS Macau EBITDA as “in-line” after adjusted for hold, we note that several updated estimates factored in higher than theoretical hold based on channel checks. In our view, LVS’ 1Q14 was a solid beat in Macau. LVS bought back $810m worth of stock in 1Q14, exceeding its minimum per month repurchase target of $75m as it “saw an opportunity” given its view of over-amplified investor concerns over VIP liquidity and other issues negatively impacting its share price.
Visitation momentum continues. March visitation to Macau increased 10.0% YoY to 2.6m visitors. March results were up against a +1.6% comparison. Mainland China visitation (~67% of total)
Market Share. According to our checks, table-only market share through April 27 is: SJM at 25.2% (vs. total March share of ~24.0%), Galaxy at 19.0% (vs. ~20.0%), LVS at 21.7% (vs. ~22.0%), MPEL at 14.2% (vs. ~12.7%), WYNN at 10.5% (vs. ~11.9%), and MGM at 9.4% (vs. ~9.4%).
I was stopped out of some trading shares but I'm not selling my core position. I see no reason to believe EBITDA and EPS estimates will not be met which makes the stock much more valuable than the current price using a modest (based on future growth) forward p/e of 25x. This is simply irrational behavior on the part of sellers.
The thing to remember is that junkets typically have their own money in the cages of VIP rooms. While they may get an LOC (line of credit) from the casino based on their RCT the credit they extend to customers is largely their own. So if a principle (owner/license holder) of a junket took off with some money he was likely stealing from his own company for reasons unknown, not from Altira.
As far as the impact, overall, on VIP from the two incidents we don't know what it will be. But it can be said that these types of headlines ("government crackdown on corruption!!!") have been reported before to very little effect on VIP play.
My feeling is a 10% haircut based on these headlines (April GGR notwithstanding.......an expected pre-holi-
day dip) is completely without merit.
IMO, the market is ignoring the salient line from the article.
"Two recent incidents are unlikely to sour Macau companies’ earnings but will dampen market sentiments towards the sector, says Credit Suisse."
The dividend is a function of net income. What I am hoping to hear is the initiation of a buyback. What a great opportunity for them to buy cheap shares.
This is really about whether VIP growth will slow in all of Macau if they (VIP's) expect not to be able to play with the same level of privacy they've had in the past.
Or more pointedly, is anything being said in the article a change of policy by the government implying extra scrutiny on VIP play? Junkets had already been asked for more detailed reporting about their players some time ago. And we know the government has made VIP play a focus of their reforms in Macau. So is anything that is now going on any different from a few months ago? I can't say. But just because a number of junkets are being looked at for potentially facilitating money laundering, that alone does not mean there has been a policy shift. All of that said, let's see how this shakes out. Hopefully we get some more information on the upcoming conf. calls.
We have not been and will not be effected by either incident regarding VIP promoter companies that were mentioned in the press today. Neither do we see any change in behavior by VIP players due to the actions the Chinese government has taken to date to more closely monitor VIP play.
"China’s government will start taking action this month to clamp down on junket operators that bring gamblers from the mainland to Macau, the Times reported on its website, citing unidentified people in law enforcement. By acting as middlemen and moneylenders, junket operators help drive the high-stakes, or VIP, business estimated to account for about two-thirds of casino revenue in the world’s largest gambling hub."
The thing is................that headline was from Feb. 6, 2013. So we have been there, seen that.
Maybe it truly is different this time. But if past is prologue, I doubt it.