Remember, we aren't talking about who has more revenue but who's revenue is going higher on a % basis. MPEL's adjusted EPS was $1.33 in 2013 and is pegged to be $3.05 by 2016 without accounting for revenue from the opening of Tower 5 at COD Macau. So unless you expect LVS' earnings to rise by about 150% in the next few years the better investment is MPEL.
If you are looking to tout LVS with the hope of getting some converts, well, good luck with that. All the valuation metrics based on EBITDA growth from the expanding footprint favor MPEL. Which is not to say LVS isn't a great investment, it is. It's just that on a capital appreciation % basis MPEL is better.
(Reuters) - Chinese Premier Li Keqiang ruled out major stimulus to fight short-term dips in growth, even as big falls in imports and exports data reinforced forecasts that the world's second-largest economy has slowed notably at the start of 2014.
Li stressed on Thursday that job creation was the government' policy priority, telling an investment forum on the southern island of Hainan that it did not matter if growth came in a little below the official target of 7.5 percent.
"We will not take, in response to momentary fluctuations in economic growth, short-term and forceful stimulus measures," Li said in a speech.
"We will instead focus more on medium- to long-term healthy development."
His comments are among the clearest yet on the government's plans for the economy, which has rattled global investors this year with a surprisingly lackluster performance.
The new paradigm is to be less heavy handed in terms of any needed stimulus. Decreasing reserve requirements for the banks, making smaller scale infrastructure investments, encouraging free market reforms, that is what to expect going forward.
The government has already made it clear, in a recent statement, large scale stimulus is off the table.
Sands China Ltd had the biggest share of Macau’s casino market in the first two weeks of this month, our sister publication Business Daily reports.
The newspaper quotes Barclays Capital as saying Sands China had 23.4 percent of casino gross gaming revenue.
Sociedade de Jogos de Macau SA had the next-biggest share of the market, with 23.1 percent of revenue.
Galaxy Entertainment Group Ltd had 16.7 percent, Melco Crown Entertainment Ltd had 16 percent, Wynn Macau Ltd had 10.7 percent and MGM China Holdings Ltd had 10.1 percent.
Potential hold variance in April. We note April CY13 hold was 3.23% versus the 2.85% theoretical win-rate - not an easy comp, though unlikely factored in initial April year-over-year estimates. Further, our checks with certain promoters and operators, and month-to-date market share results (we acknowledge weekly market share results are normally not a significant data point, but share price disruption warrants at least some discussion here, in our view), point to potential hold-disruption in the first two weeks of the month.
For instance, Galaxy market share month-to-date is ~16.7%, versus its narrow market share range of between 19% and 21% from October 2013. Checks do not cite any VIP popularity shift away from Galaxy – instead, this is a likely a negative hold variance (matching our additional checks on Galaxy so far this month) from a top-3 market share player.
VIP liquidity concerns. Our checks, especially amongst larger promoter groups, do not cite credit/liquidity as a significant negative factor in April.
Of note, WYNN typically carries an ~13% market share in VIP versus its ~7% market share in mass revenue. However, in the first two weeks of April, WYNN market share is ~10.7%, in-line with its recent results. We believe significant VIP disruption would likely impact WYNN market share more so than other operators. At least month-to-date, this has not been illustrated in checked market share for WYNN.
Macau Musings - Potentially strong near-term set-up and longer-term positioning opportunity
Macau stocks (MPEL, LVS, MGM, WYNN) are off 9% since April 1. While April’s Macau gross gaming revenue (“GGR”) run-rate is trending below consensus, full-year GGR estimates continue to hold (overall). We believe the likelihood of improving week-over-week GGR could boost sentiment for Macau names, and that current share prices may prove opportunistic, especially longer-term.
Hate to play the weekly GGR game, but given month-to-date Macau stock movements - our thoughts on weekly data: Checks cite Macau’s GGR run-rate for the first two weeks of April at +~2% year-over-year, below initial mid-teens estimates. However, April GGR should still end between 5% and 10%, in our view. We believe hold/win rate was likely one negating factor to April’s GGR to date. Hong Kong begins its “4-day” Easter holiday this Friday (small, but helpful) and a 3-day Golden period begins May 1. Bookending potentially increasing weekly GGR are 1Q14 Macau operator earnings reports, where management teams will likely express confidence/optimism in the current Macau market, its long-term secular mass story, and (upon likely investor questioning) - VIP liquidity. 1Q14 results should also highlight strong cash-flow dynamics, and the potential for continued capital return increases to shareholders. Not a bad near-term set-up and longer-term positioning opportunity, especially given recent downward share price volatility, in our view.
Potential hold variance in April. We note April CY13 hold was 3.23% versus the 2.85% theoretical win-rate - not an easy comp, though unlikely factored in initial April year-over-year estimates. Further, our checks with certain promoters and operators, and month-to-date market share results (we acknowledge weekly market share results are normally not a significant data point, but share price disruption warrants at least some discussion here, in our view), point t
Macau April Gross Gaming Revenue Color
Based on UBS channel checks, daily gaming table revenue in Macau from April 8-13 was
at HK$927M or $119M, up +7% from run rate of HK$866M or $111M from April 1-7.
This compares to YTD run rate of $1,039M or $133M. While the last 7-day run rate has
rebounded, it remains sluggish. We believe VIP trends remain slow this month, while mass
market has been robust. Recall, Macau March gross gaming revenues was reported at
MOP35.5B or $4.44B, up 13.1% YOY, coming in ahead of initial market fears of single
digit growth in March. We expect Q2'14 gross gaming revenue growth in Macau to
average +15-18%, with growth rates likely higher in April-May period, and slower in June.
We believe our FY'14 gaming revenue growth estimate of +14% in Macau is well
underpinned. This compares to consensus expectations of +13-20%, with average of
Macau GGR Market Share
Q114 FY'13 Through April 13
LVS 23.1% 21.7% 23.4%
Wynn 10.7% 11.0% 10.7%
MPEL 13.0% 13.0% 16.0%
SJM 23.0% 24.7% 23.1%
MGM 9.8% 10.0% 10.1%
Galaxy 20.4% 18.6% 16.7%
Volume was too light to make too much of this rebound. If they print a weak GGR number on Monday we'll see where things stand on the stock price.
There have been quite a number of analyst comments out recently so I don't remember who made the reference to MPEL's "poor VIP performance." But the remark illustrates perfectly how data can be misconstrued. Bain peels back the layers of the onion to explain lagging VIP results are due to THE CONVERSION OF VIP TABLES TO ONES ORIENTED TOWARDS MASS/PREMIUM MASS. So not only does his analysis provide context for any decline in VIP, he hits the nail on the head by understanding the rationale for the move away from VIP is due to higher margins and less credit default risk exposure.
They're entitled to their opinion. Here is Sterne Agee's.
1Q14 earnings preview
We raise our 1Q14E adj. EBITDA to $350.7m from $329.9m.
At City of Dreams (“COD”), the market leader in premium mass gaming, we project mass
table revenue will be +46% YoY versus Macau market checks of +39%. We also anticipate a
continued margin ramp at COD given its weighting to mass gaming. Mass gaming generally
carries margins three times higher than VIP and is growing nearly three times faster. As such,
we expect a favorable outlook for continued margin gains at COD.
During 1Q14, we believe MPEL continued to convert lower-margin VIP tables to highermargin
mass ones at COD, which was the primary reason MPEL’s VIP rolling chip turnover
growth lagged the market (according to checks), in our view.
I'm not sure how significant that is, I don't remember if a similar question was included on previous ballots. But given David Bain's mention of a possible pending buyback program in his note that upwardly revised his 2014, 15, and 16 EBITDA and EPS estimates, it at least gives credence to the idea a buyback is under consideration.
This is from a CNBC article dated back to Feb. 2014
"China's trust sector grew at a slower pace in the final months of last year, suggesting that official efforts to curb growth in risky shadow-bank lending may be having some impact.
Assets under management at Chinese trust firms rose to 10.9 trillion yuan ($1.8 trillion) at end-December, the China Trustee Association said on Thursday. That's year-on-year growth of 46 percent, a slowdown from 71 percent and 60 percent growth in the second and third quarters, respectively.
But it's still swift growth by most standards, highlighting the challenge facing regulators who want to tame the risk from off-balance loans, which often flow to weak borrowers shut out from traditional bank loans. By comparison, domestic bank loans in China rose by only 14 percent last year."
If you read the Barron's piece that just came out asking about why the equities sold off it speaks of loan growth beating consensus. But just as in Q4 of 2013 the trust sector growth slowed, a consequence of the intentional actions taken by the government in their attempt to reign in the shadow banking system. The question being, was today's reaction to slowing credit growth a misinterpretation of the type of credit growth that is slowing, and thus a fundamental misread on the impact to VIP? Quite frankly, I don't know. But I do know VIP roll in Q1 was strong despite slowing in the trust segment in Q4. Listening to the commentary of the Macau names when they report in the coming weeks should give us more insight in to how VIP is performing. As will the weekly GGR reports. Then we'll find out just how much of an over reaction, to what figured to be choppy data, MPEL's pounding has been.
Wow, you caught me. My real name is Boiler room Bob. But seriously, the point I'm making is that while this sell off may continue it has already gotten beyond absurd.
This stock's earnings are expected to grow by almost 200% over the next 3 years but it trades below 20x 2014 EPS estimates. It is the cheapest stock in its sector. It pays a dividend. The underlying company has a ton of capacity being added in the next 24-36 months. It has a huge demographically driven tailwind. Market penetration for its customer base is far less than 5%. The consensus 12 month price target is 45% higher than the current price. Interested?
Stifel Research recently pegged gross gaming revenue at a 15%-20% growth path for the next three to five years.
Not that we haven't been reading this kind of stuff in about every article on Macau for the last 6 months, But it does illustrate just how tone deaf the market has become to outstanding growth in an otherwise slow growth environment. Very, very odd.
Consider this from Sterne Agee's last report...........
During 1Q14, we believe MPEL continued to convert lower margin VIP tables to higher
margin mass ones at COD, which was the primary reason MPEL’s VIP rolling chip turnover
growth lagged the market (according to checks), in our view.
Of note, according to checks, COD had 260 mass tables in 4Q13, from 250 in 3Q13, and 240
in 2Q13. Altira VIP tables went to 125 in 4Q14, from 165 in 3Q13, and 170 in 2Q13.
From a visibility, growth, margin and stock multiple standpoint, we prefer COD’s outperformance in the mass
and its continued clear focus on the segment.