Macau checks: March ending in solid fashion; 1Q trending +20% YoY
According to our channel checks, Macau table-only gross gaming revenue (“GGR”) is MOP32.7b (USD$4.1b) through March 30. The March GGR run-rate is ~+12% YoY or MOP35.2b (USD$4.4b), after we include an assumption for slot play. While mid-month March channel checked results were choppy, we attribute it mostly to one week of low hold with some light volume in the same week. Generally, checks continue to cite solid headcount on mass floors and volume in VIP rooms. Our March GGR forecast is now between +11% and +12% from +10% and +12%.
Overall, 1Q14 should end close to +20% year over year and +2% QoQ. We have no change to our +16% CY14 YoY Macau GGR forecast, which we believe may prove conservative. Further, we believe 1Q14 consensus earnings estimates for Macau operator specific names will go higher within the next ~20 days.
Over the past 9 years, March gross gaming revenue has averaged ~10% better than February – but the month-over-month result varies widely from +29% to +1%. Last year's March VIP hold was 3.4% versus 2.85% theoretical, and marked the highest hold month of 2013. March results to date are trending -7% off of February’s record monthly GGR.
Market Share. According to our checks, table-only market share through March 30 is: SJM at 24.6% (vs. total February share of ~22.0%), Galaxy at 20.3% (vs. ~21.0%), LVS at 21.5% (vs. ~25.1%), MPEL at 12.4% (vs. ~12.0%), WYNN at 11.6% (vs. ~10.9%), and MGM at 9.6% (vs. ~9.1%).
I do not pretend to be anything close to a chart expert but I'd say the first line of resistance is the 100 dma at around $39.
Macau Gaming: Unproductive Junkets Pushed Out; Nomura Raises TP of LVS to $106
Nomura Securities now expect Macau‘s casino industry to reach $53 billion in sales this year, up 17% from 2013. They subsequently revised their 12-month price targets for Wynn Resorts (WYNN) by 13% to $276, raises Las Vegas Sands (LVS) by 12% to $106, and MGM (MGM) by 14% to $33.
The revised 2014 growth estimate was mainly driven by a more positive outlook for the VIP segment. Nomura analysts now believe a low double-digit growth is a more likely scenario, mainly because “table scarcity in Macau is forcing out the lower producing junket operators, as well increasing minimum volumes from the higher volume junkets,” wrote Harry C. Curtis, Brian H. Dobson and Louise Cheung in a research note published today.
The analysts expect the positive supply-demand dynamics to continue through 2017, even though five new casinos will open in the Cotai area over the next 2-3 years.
What makes the Nomura Securities analysts so confident? It is the penetration rate. Only about 1.7% mainland Chinese have visited Macau. By comparison, about 25% Americans have visited Las Vegas. Wow, the difference is glaring.
On the price target upgrades:
We have been using EBITDA estimates for the new resorts on Cotai WYNN, LVS and MGM that now appear to be too conservative and well below current run rate EBITDA and ROIC. While we assume some cannibalization on the Peninsula casinos short term, the impact should be short lived. The EBITDA multiple of 12x we have been using for new developments also appears to be too conservative, and we believe 13x is more realistic given expected ROIC in excess of 25%.
8% in a day reacting to something that turned out to be meaningless. Yes, that has a familiar ring to it.
I'm a bit less optimistic on the timetable for COD Manila just because these things (a project of this magnitude) typically run a little late in schedule (co references to being on schedule leave some wiggle room for the actual opening date). In the short run I also think Macau GGR estimates will come down which tends to have an outsized effect on investor psyche and thus the extent of the rebound........again in the short run.
Otherwise I'm on the same page.
Melco Crown has already recommended the payment of a special dividend of US$0.1147 (MOP0.92) a share.
“We believe our capital management strategy balances the key objectives of pursuing growth opportunities while returning excess capital to shareholders, thereby maximising long-term shareholder value,” says Melco Crown chief executive Lawrence Ho Yau Lung.
Telsey Advisory Group LLC says the gaming sector, “an industry founded on junk bonds, high leverage and volatility, has seemingly transformed itself into an industry of investment grade balance sheets, high margins and accelerating returns to shareholders”.
All the six casino operators in Macau are building new casino-resorts in Cotai. But analysts say they have enough liquidity to finance the projects and pay increased dividends.
“At this point of the cycle, operators would be looking to put their capital to work, reinvesting funds to drive future development,” Telsey says. However, with few expansion opportunities available, “casino operators are having a challenging time allocating their capital”.
The New York broker says the end result is that assuming continued stability and even just modest growth from Macau, “casino operators will continue to be large and growing sources of
capital flows back to shareholders”.
IMO you have conflated two separate issues, valuation and the predictability of earnings. Analysts base their estimates on many things that are predictable, like S,G&A expenses and margins. Less predictable are relatively small, short term fluctuations in demand which admittedly are variable.
In terms of valuation, I suppose you can hold the position that a company with top line growth of 30-40% is expensive at 21x earnings, I do not.
All that said I have changed my opinion on the buy, sell, hold question for anyone who cares. If you are concerned about the price in the short term you probably should base your decision on what you think the next headline will be. For example, an update on March GGR may get published on Monday. Expectations have come down to the 10-13% growth range. If the print is below that range expect another wave of selling. If things picked up in the last week and the number is 15% growth maybe the stock goes up $4. After that it's the actual growth number for March, predictions for April, official PMI, Q1 GDP, Q1 reports by the gamers (which will be excellent) and a lot of stuff in between. The news cycle is driving the bus, not the long term prospects for EBITDA, so any decisions made about a position should take that in to account.
I have always thought of momo stocks as ones that have big runs over short periods of time that sell for outsized multiples. Ones in which fast money has poured in creating lots of momentum, or momo. Sure MPEL has had a terrific run but over the course of about 18 months, not 18 weeks. Pushing it higher has been real earnings as well as a bright future, not speculation. I know EBITDA is the preferred valuation metric for the gaming stocks but to simplify things for some the stock now trades at 21x consensus 2014 earnings. That isn't frothy, in the grand scheme it's pretty conservative for a growth stock.
I think what is going on now is managed money, for whatever reason you want to assign, has decided to look for another investment vehicle and are trading out of the Macau names. Clearly, as we are beginning to hear from a number of sources in the analyst community, the sell off is not about deteriorating fundamentals, it is about ignoring those fundamentals. Does a China GDP slowdown add some uncertainty? Yes. Enough uncertainty to merit a 20% sell off from a valuation that was 20% below the consensus price target? Nope.
Assembly to debate full smoking ban in casinos
Tony Lai | 26/03/2014 | in
The Legislative Assembly yesterday gave a unanimous nod to debating amendments to the tobacco control law next month, urging the government to immediately implement a full smoking ban in casinos.
Assembly member Ella Lei Cheng I, who tabled the motion, said that the partial smoking ban implemented last year was unsatisfactory, given “the lenient supervision by the government”.
The workspace for casino employees was even “worse” than before the partial ban, she added.
The Assembly should therefore debate “whether there should be immediate revision to the law to implement a full smoking ban in gaming venues in order to protect the occupational safety of gaming employees”, Ms Lei said.
Smoking is currently permitted in areas occupying no more than half the floor space of the gaming venues. But the Health Bureau said earlier this month that they would pilot a scheme that will ban smoking on the mass-market gaming floor except for smoking rooms which do not accommodate gaming tables or slot machines. For the VIP gaming floor, smoking is still permitted in at most half the floor space, the latest proposal says.
More room for casino growth, say analysts
Analysts say that the success of casino and integrated resorts in Singapore will continue to drive demand for similar services in other parts of Asia.
SINGAPORE: The opening up of new casinos or integrated resorts in North Asia is unlikely to cannibalise the gaming industry in Singapore.
Analysts Channel NewsAsia spoke with say the success of casino resorts in the city-state will continue to drive demand for similar services in other parts of Asia.
First, Genting Singapore announced its entry into the Korean gaming market via a US$2.1 billion investment in Jeju together with a Chinese property developer.
Then came property developer OUE and its project for an integrated entertainment resort in South Korea. The project valued at about 855 billion won, or S$1 billion, is being developed by a consortium comprising OUE, Lippo and Caesars Entertainment Corporation.
As land space in the two biggest gaming destinations, Macau and Singapore, reach capacity, casino operators are turning their attention elsewhere.
"There's a lot of focus in Japan about entering and opening new resorts and granting new licenses,” said Greg Unsworth, Singapore media and entertainment leader at PwC.
“The integrated resort concept is one that is particularly appealing. It's seen as a new successful model, built on what's been done in Singapore and its success here.
“There is a lot of interest… but there is a time frame involved in the roll out of these facilities. Even in Japan, they are not expected to roll out any plans till 2015, so Korea is the next target for international gaming players."
My view has been made clear. As painful as it is to see your profit erode I think it would be a mistake to sell now. There is no correlation between the magnitude of the decline and the threat to EBITDA. The move is WAY over done. As toast noted in a post today this has been a 20% down move for a stock likely to grow the top line by 40-50% in the next 22 months.
That tells me this has become less about growth concerns and more about hedge funds unwinding positions with absolutely no regard for fundamentals. They simply want to move on to other areas. Once they stop the fundamentals as well as pipeline growth will matter again.
It has been well established that the extent of downside move is unjustified. Your post is another example of why. Cramer's show started with his proposition that lately the market has been seeing sector rotation out of secular growers and in to "value stocks" that grow nicely in times of economic expansion (like the industrials), ones currently viewed as being under valued. In his words (to paraphrase) the stocks are being sold "not due to anything they have done wrong since this isn't about the fundamentals of those stocks, it's about the fundamentals of the stocks being bought." It's an explanation as good as any other I've seen.
It's about time for the analysts to start making comments like the ones we saw today in Barron's. Boiler plate stuff about how this dip is unwarranted given all the things we have all talked about a 100 times.
We've definitely seen this movie before. Jan. 17 to the 24th the stock got crushed ($44.70 to $38.20) when word was getting out Jan GGR growth was going to be in the single digits.
Now comes the sequel as fear and loathing hits over China's GDP. The difference being the Jan growth thing was perceived to be a one off event due to CNY while GDP is more troublesome. But troublesome for who? For Macau's GGR? Not anything close to enough to cause this kind of sell off.
To see the shorts run for the exits if they put out a PR with the headline......................
"Melco Crown Entertainment Announces A Tentative Date For The Opening Of City Of Dreams, The First Integrated Resort In Manila."