Doesn't he run a fund? Oh yeah it must be imaginary since he has all the time in the world to answer every yahoo message board participant and concoct come inane theory how we are all the same people while at the same time calling us all morons as the stock sinks day after day while he's adding hand over fist. Hmmm
(Bloomberg) -- The worst is yet to come for Macau casinos after February gaming revenue plunged the most on record, according to one of the few analysts who correctly predicted the stocks would fall this year.
Gaming revenue will keep sliding through mid-year and dividends will get cut as the cost of new capacity eats into free-cash flow, leaving share valuations too expensive, said Jamie Zhou, an analyst at Macquarie Securities in Hong Kong. Zhou was one of just two analysts tracked by Bloomberg with sell ratings on Sands China Ltd. and Galaxy Entertainment Group Ltd. when he started covering the shares in December.
The two largest casino operators by market value in the former Portuguese colony have since tumbled at least 19 percent as China’s economic growth slowed to the weakest pace since 1990 and President Xi Jinping’s anti-graft campaign deterred VIP gamblers. While a gauge of Macau casinos rallied the most in two weeks on Tuesday as the revenue drop was smaller than some analysts predicted, Zhou is keeping his sell recommendation on the industry.
“Macau is in a tough spot,” Zhou said in an e-mailed response to questions from Bloomberg News. “We believe dividends will be slashed across the board.”
The six main casino operators -- Sands, Galaxy, Wynn Macau Ltd., SJM Holdings Ltd., MGM China Holdings Ltd. and Melco Crown Entertainment Ltd. -- lost $89 billion in market value over the past year, according to data compiled by Bloomberg. An index of the stocks added 1.7 percent Tuesday, paring its 12-month slump to 46 percent.
Gross gaming revenue in the world’s biggest gambling hub fell 49 percent to 19.5 billion patacas ($2.4 billion) last month, Macau’s Gaming Inspection and Coordination Bureau said. That compared with expectations of a 54 percent decline, according to the median of eight estimates compiled by Bloomberg News.
Macau last year posted its first annual decline in gaming revenue. The industry may face another 8 percent drop this year, a Bloomberg survey showed, after last year’s 2.6 percent fall. Wynn Macau dropped 2.4 percent to HK$20.65 as of 11:02 a.m. in Hong Kong to lead declines among the casino stocks. SJM Holdings slipped 2.3 percent, MGM China sank 2 percent, Galaxy fell 1.1 percent and Sands China lost 0.4 percent. Melco Crown added 1.1 percent.
Most analysts have remained bullish, with Zhou’s sell ratings putting him at odds with peers. The average consensus on the six operators is 3.8 on a scale where 5 equates to a unanimous buy recommendation. That’s in line with the score for the members of the Hang Seng Index, data compiled by Bloomberg show. Strategists are most bearish on Wynn Macau, with eight sell calls out of 28 recommendations. Zhou is now the only analyst advising investors to offload Galaxy shares.
Analysts are too optimistic about the outlook for shareholder payouts by casinos, he said. As well as the revenue decline, wage inflation will boost expenses and the cost of opening new venues will drain cash, said Zhou.
“We don’t think the street has fully grasped the negative operating leverage in their earnings forecasts,” said Zhou, referring to other analysts. “While consensus have 5-7 percent forward dividend yields, we see only 2-4 percent at best.”
Macau casino operators were some of Hong Kong’s best stocks to own in the five years through 2013, with Galaxy rallying more than 6,400 percent, as more than eightfold growth in gaming spending over the decade through 2013 transformed the former Portuguese enclave into a gambling center larger than the Las Vegas Strip.
President Xi in December urged Macau to wean itself off its reliance on casinos and turn the city into a tourism and leisure center. His campaign against corruption has snared more than 100,000 “flies and tigers,” or low- and high-level officials, according to official data.
“Macau gaming will take some time to recover. They’re still struggling to find the bottom,” said Sandy Mehta, the Hong Kong-based chief executive officer of Value Investment Principals Ltd. “The crackdown on conspicuous consumption is the biggest headwind. It is great that the Chinese leadership is improving transparency and governance, but Macau will continue to feel the brunt of these measures.”
Representatives for Sands China and Galaxy declined to comment on the companies’ dividend plans. The four other casino operators didn’t immediately respond to requests for comment from Bloomberg News made after regular office hours on Tuesday.
The slump in gaming stocks has made shares cheaper. The BI Macau China Gaming Market Competitive Peers Index traded yesterday at 16 times earnings, compared with its five-year average multiple of 20.3. Casinos slid last month to the lowest valuation relative to the Hang Seng Index since the middle of 2012.
For Macquarie’s Zhou, they’re still not a bargain. He has a 12-month target price of HK$31 on Sands, 14 percent below Tuesday’s close. He sees a 15 percent decline to HK$18 for Wynn Macau, and a 17 percent drop to HK$33.20 for Galaxy Entertainment.
The addition of more hotel rooms in Macau and capital spending commitments mean “industry level free cash flow will be negative for years to come,” he said. Shares remain expensive, “particularly with further downside possible.”
While Macau gaming revenue growth is shrouded in near-term bearish sentiment, it is positioned to show a streak of monthly year-over-year growth improvements from February results.
However, downward 1Q15 (and likely 2Q15) Macau market and company consensus revisions are coming as are high-profile Macau Government discussions on key, structural issues.
Near-term stock positioning ( 6 months), we believe all US-listed Macau stocks offer upside unmatched by any other gaming / leisure sub-segment.
Investor view. Investors mostly carry a bearish near-term Macau stock bias though also predominantly acknowledge Macau’s potent longer-term story and continue to focus on forward potential buying levels/catalysts.
Below, we discuss the following in more detail:
We believe gaming spend per visitor is a cyclical, not a structural concern. CY14 visitation to Macau was +7.5% but there was a high-end patron chilling impact from China’s anti-corruption campaign negatively impacting spend per visitor by ~32%.
We view visitation as evidence of the underlying desire to visit and gamble in Macau – this underlying desire has not bifurcated between higher-end patrons and grind mass patrons. Higher-end patrons will ultimately return to Macau as China’s focus moves from the anti-corruption campaign to the economy and as new casino resorts open, in our view. Further, recent China rate cuts and property law loosening measures are positive for VIP/premium-mass liquidity/demand.
Recent Macau government comments related to Individual Visa Scheme visitation caps are not necessarily a new issue, though concerning. Notably, however, a key Macau contact with political insight suggests that comments regarding limiting visitation growth acts as a lever to address the Mainland for additional (much needed/desired) land allowance to Macau for resident housing, etc.
New Macau Government’s upcoming mid-term gaming review should intensify discussions on key, structural issues such as concession renewals ending in 2020 – 2022. Media reports from such discussions may cause disruption in Macau stocks, though we believe potential dips from the “discussion of the day” may result in longer-term buying opportunities.
New resort table allocation visibility is limited though Macau’s table cap allows for ~1,886 new tables from 2012 levels. We believe most new casino resorts will receive between 350 and 400 tables (though this assumes less for Galaxy’s upcoming expansion and LVS’ Parisian).
CY14/CY15 gross gaming revenue projections. We forecast QoQ (and monthly) sequential GGR growth increases from 1Q15 (and February) results. Our CY15 GGR forecast is for –10%, while CY16 is for +22%.
Macau worth the time. Significant upside versus any other gaming / leisure sub-segment given a multi-year secular growth transition driven by longer-term visible catalysts combined with low penetration.
If yesterday was a good time to add you must be going crazy for the stock today!
According to our channel checks, February Macau table-only gross gaming revenue (“GGR”) is MOP9.1 billion (USD$1.14b) through February 15. Including slot assumptions, the February GGR run rate indicates a -54% year-over-year (“YoY”) monthly result, or MOP17.2b (USD$2.15b). While daily GGR should increase significantly during the Chinese New Year holiday beginning February 19 (versus January 31 last year), February GGR to date is lower than anticipated.
Last week's average daily GGR was down ~14% from the previous 8 days. Typically, daily GGR slows into significant holidays though the first 15 days of GGR have been lower than anticipated.
February forecast. Our February GGR growth forecast is lowered to -39% to -46% from -34% to -40% YoY. February should mark the low-growth month of CY15; many "long" Macau investors look forward to its passing.
Comparison look – not easy. Last year, February GGR was ~30% higher than CY14’s monthly average. Mass gaming growth was +~52%, and VIP revenue growth was +~37%; both growth rates for specific divisions were higher than any other month in CY14 (and CY13).
Mass gaming – smoking restrictions having impact. The ban on smoking on mass casino floors is likely hurting hold/win-rate comparisons as the new restrictions limit length of play. The negative win-rate impact from smoking restrictions has been seen in Macau companies already reporting 4Q14. Mass gaming floor smoking restrictions took place in October of last year.
The mass smoking restriction impact combines with the aforementioned ~52% growth rate comparison for February and continuing negative growth in premium mass play. Premium mass play carries an outside impact to overall mass GGR (20/80 rule) and has been negatively impacted by President Xi’s anti-corruption campaign and some softness in the China economy.
Market share. We expect LVS and WYNN to achieve higher than their average share in the final leg of February. LVS should benefit from its island-high hotel base during high visitation periods (e.g., Chinese New Year) and overall weighting to mass gaming. WYNN will benefit from a recent casino remodel, including 2 new VIP rooms, 40 tables back in service, and one new VIP promoter, Sun City, that was not previously at the facility.
Month-to-date market share results. According to our checks, February 1-15 table-only market share results are: SJM at 24.2%, Galaxy at 20.9%, LVS at 22.2%, MPEL at 14.3%, WYNN at 9.1%, and MGM at 9.3%.
Net revenue was $173.1 million, a 30% decrease from $247.6 million in the same quarter last year but above our expectation for $169.7 million. EBITDA was $14.2 million, a 60% decrease from $36.0 million in the fourth quarter last year and was below our estimate. Rolling chip volume was $8.1 billion, which was above our expectation. Mass market table drop was $174.7 million, 1 15% decrease from $205.2 million in the same quarter last year and below our estimates of $180.6 million.
Occupancy at Altira for the quarter was 99%, which was in line with our estimate. ADR was $235 versus $234 in the same quarter last year but was below our expectation.
Net revenue from Mocha was $32.8 million, a 15% decrease from $38.8 million in the same quarter last year but in line with our expectations. EBITDA was $6.5 million versus $10.8 million in the fourth quarter of last year. The number of gaming machines was 1,300. Net win per gaming machine per day was $261 versus $246 in the same quarter last year but below our expectation of $295.
Price Target: $36.00
Analysts: David Bain (949) 721-6651
MPEL - Maintain Buy post 4Q14 results
4Q14 demonstrated market share gains in both VIP and mass. We raise our CY15/CY16 EBITDA forecast by 3%/1% - finally, an upward estimate revision for a Macau stock that we believe investors will look to first on the heels of any positive Macau market sentiment shift. MPEL trades for ~9x CY16 EV/EBITDA, close to some domestic regional gaming plays (and well-below US-listed Macau peers). We believe February should mark a Macau gaming revenue growth bottom, and remain buyers of MPEL ahead of market and company specific catalysts.
4Q14 results and estimate changes. 4Q14 property EBITDA of $278.6m compared with our estimate of $274.6m and consensus of $302.7m. Hold adjusted EBITDA was close to $290m. We were low on the street, but close to buy side expectations - consensus was a mix of lower new and higher stale estimates, in our view.
Margins at City of Dreams were down sequentially 150 basis points due to low mass hold and a employee retention (+$5m from 4Q14). However, promotions were stable, and management noted the competitive marketing environment remained rational. Non-VIP segments accounted for ~80% of total EBITDA.
CY15/CY16 EBITDA/EPS to $1,330.9b/$1.05 and $1998.0b/$1.49 from 1,293.0/$1.00 and $1969.9/$1.45.
Our upward adjustments are top-line driven and come despite newly lowered mass hold assumptions reflecting new smoking regulations negatively impacting length of play. We also lower property margin assumptions slightly, though we anticipate 1Q15 City of Dreams margins to be higher than 4Q14. Top-line upward adjustments mostly reflect its successful repositioning of its rolling chip (VIP) business focusing on larger/higher quality junkets.
Market growth comments bullish versus investor expectations. Management opined that CY15 market growth will be “slightly negative.” This is better than recent consensus, which calls for closer to -10% market growth in CY15 (with some as low as -20%). Investor market growth consensus is similar to the sell-side’s, in our view.
All projects on time/budget. City of Dreams Manila grand opening took place February 2, Macau Studio City remains on track for a 3Q15 opening, City of Dreams new retail development is still set for a 2016 opening and the new hotel tower (premium mass focused) is progressing for an early 2017 opening.
Feb. 12, 2015 12:55 a.m. ET
Baidu posted disappointing earnings in the fourth quarter, but China’s dominant search engine is starting to look like a bargain compared with the country’s other Internet giants.
The company’s revenue rose a rapid 48% from a year earlier in the fourth quarter, but net profit rose just 16%. Analysts were looking for a 24% rise. The company’s guidance on revenue in the first quarter of 2015 also fell a bit short of forecasts.
There were a couple of factors weighing on results, neither of which is unique to Baidu.
One was lower monetization of mobile. Searches on smartphones exceeded those on PCs for the first time in the second half of 2014, the company said. That is welcome, but mobile traffic is harder to make money from. Advertisers aren’t used to it, and the smaller screen leaves less space for ads. The exact same issue has contributed to slowing revenue growth at Alibaba.
Margins are also being compressed by aggressive spending. Sales, general and administrative expenses rose 89% from a year earlier in the December quarter, while research and development spending rose 69%.
The risk is that spending becomes undisciplined. A new $300 million artificial intelligence research center in Silicon Valley could be a smart investment, or prove to be a trophy project with little commercial application.
Still, Baidu’s overall strategy looks sound. It has been more conservative than Alibaba and Tencent on acquisitions, focusing its spending on promoting mobile offerings, like a new service that connects users to local merchants.
Baidu’s strong position in search and maps—and its Google-like predominance in China’s closed off Internet world—give it a platform to capture a lot of mobile activity, such as by helping users find restaurants and shops in their area. Initiatives like these should mean that mobile traffic will eventually become more lucrative than desktop searches, the chief financial officer told analysts Thursday.
Baidu shares were down sharply in after-hours trading. The decline could provide a good entry point. Before the results came out, analysts expected Baidu to grow earnings at an average 31% a year over the next three years, nearly as fast as Alibaba, and substantially faster than Tencent. Those expectations may get tempered. But trading at just 26 times 2015 earnings, compared with 32 times each for its two rivals, provides plenty of upside.
Investors searching for value in the Chinese Internet will find it with Baidu.
Sentiment: Strong Buy
According to our channel checks, February Macau table-only gross gaming revenue (“GGR”) is MOP5.2b (USD$0.65b) through February 8. Including slot assumptions, the February GGR run-rate indicates a -49% year-over-year (“YoY”) monthly result, or MOP18.9b (USD$2.4b). However, we expect an over 20% boost in daily GGR during the Chinese New Year holiday beginning February 19 (versus January 31 last year). Still, February has started slower than anticipated.
Our February GGR growth forecast is for -34% to -40% YoY, in-line with recent consensus. February should mark the low-growth month of CY15 - many "long" investors look forward to its passing.
Our junket contacts remain cautiously optimistic for Chinese New Year play (though all have noted it is too early to have a good idea of results) and mass visitation should continue to show steady increases year-over-year driven by a higher volume of lower quality players.
We expect LVS and WYNN to achieve higher than their average share in February. LVS should benefit from its island-high hotel base during high visitation periods (i.e., – Chinese New Year) and overall weighting to mass gaming. WYNN will benefit form a recent casino remodel, including 2 new VIP rooms, 40 tables back in service and one new VIP promoter, Sun City,that was not previously at the facility.
Month-to-date market share results. According to our checks, February 1 – February 08 table-only market share results are: SJM at 22.7%, Galaxy at 19.3%, LVS at 21.2%, MPEL at 14.3%, WYNN at 11.0%, and MGM at 11.5%.