Goog title for quality article illustrating PAGCOR's open arms vs Macau/Beijing's desire to shoot themselves in the foot for the time being as they cede VIP and premium players to alternate AP venues. MPEL in the A1 slot...
"As Manila’s Entertainment City spurs growth and regulatory challenges, Pagcor chairman Cristino Naguiat wants all sides to profit
Friday, 10 April 2015
Pagcor Chairman and CEO Cristino Naguiat isn’t a man of many words. But he doesn’t need to be. The progress of Pagcor speaks for itself since President Benigno Aquino handpicked Mr Naguiat for the top job in July 2010 [where he] has to balance Pagcor’s diverse roles as gaming regulator, casino operator, government revenue generator and driving force behind Entertainment City, a master-planned district in Manila Bay that’s developing into the largest cluster of integrated resorts between Macau and Las Vegas...
In February, City of Dreams Manila held its grand opening as the second resort in Entertainment City. The first was Solaire Resort and Casino, a US$1.2 billion project spearheaded by Philippine ports billionaire Enrique Razon Jr, which opened in March 2013 at the 120 hectare (300 acre) district that will also include commercial and residential developments...
COD Manila brings Macau casino operator Melco Crown Entertainment to the Philippines. Working in partnership with SM Group, controlled by Henry Sy, the Philippines’ richest man, Melco Crown increased its investment in the $1.3 billion project and took over operations after Pagcor reinterpreted its terms of reference for licensees’ projects, basing its allocation of gaming tables and machines on total size of lodging areas as well as number of rooms. That revision increased the resort’s permitted number of tables by 50% to 384 and more than doubled the number of electronic gaming positions...
Pagcor fought the BIR decision in the courts and pledged to negate the impact on licensees. Last year, it agreed to cut license fees...
By Zinnia B. dela Peña (The Philippine Star) | April 13, 2015 - 12:00am
MANILA, Philippines - The Philippines is on the cusp of a casino boom with more foreign firms placing their bets on the Southeast Asian nation that has attracted increasing numbers of the wealthy overseas high rollers and big spenders amid China’s crackdown on corruption and slowing economy..."
Soon it will be clear that there is a $1B+ pot inuring to COD Manila annually in Manila... they have more than 4000 Philippinos on the payroll at COD Manila already, are currently adding another 430 or so based on Phistar reports (and see COD website for large listings still open) and that is before getting VIP operations fully up and racing -- and well before they build out the recently disclosed "expansion phase" there with the Sy family pals going 100mph on commercial development surrounding the property, all as the new "permanent" US Navy base is built out in Manila Bay.
How much longer will Macau/Beijing cede half of last year's VIP revenues to other venues in the AP, especially as the Foxhunt/Skynet thrashing about winds its way down as the corrupt politicians and political foes of the current regime are dealt away. otp, MPEL generates less than 15% of COD Cotai revs from VIP, and, despite all the bs media coverage, actually joined Galaxy last Q in reporting a serial increase in VIP RCT and win 4Q vs 3rd.
Meanwhile, LVS is now telling the street thay are actively promoting VIP play in both Macau and Singapore... seems they are tired of ceding away that business, even with its appurtenant low margins and scrutiny. Certainly the crooks and political foes of Xi Jinping are not coming back to Macau, but the worst month since last June still reflects 50% of all time peak RCT... and the new salons at Galaxy, WYNN, LVS and MPEL are just now getting going there, right ahead of the new product coming on stream with Galaxy 2 and MPEL's Studio City.
LVS has a different ownerships structure than does MPEL as some here understand, but see their press release from a few minutes ago.
Despite the difficulties Macau properties present as discussed prior, LVS has also consistently suggested they believe a structured REIT program will one day pencil for their resort properties and malls. Are they telegraphing they are coming now with a novel structure for Macau? Clearly that is where the majority of their commercial ebitda emanates from, and perhaps they are thinking through MBS as well.
So maybe they and their lenders do not think the sky has or is falling on Macau? LOL The press release from a few minutes ago discusses how pleased the company is with the vote of confidence their lenders just joined them with on the $1B expansion of their credit arrangements adding "balance sheet strength and flexibility" (to do more capital distributions they write), but they have something more to say beyond noting they will pursue more integrated resort development: "We will continue to execute our plans to [further] enhance our balance sheet strength and financial flexibility.
Oakmark's David Herro commented extensively on China's ongoing political winds, corruption crackdown (including reference to former security minister Zhou who is now convicted of fraud and awaiting sentencing -- reportedly he stole some $15B+ in his capacity as a key member of the former regime) in his March 2014 quarter letters to fund investors. Herro and everyone else except for the forbes guy and a couple of hedge funds guys sharing site visit recaps, continues to say nada about COD Manila, however, those actually studying know they had $9m of revenues from Manila during the December Q (when they were only partially soft opened for only the last couple of weeks and they will obviously have more to show and say as they were soft opened through Feb 1 when they did the "grand opening" -- the latter of which still not including the 300 VIP suites in the Crown Hotel property and several of the other attractions there. The entire resort should be up and running within days now...
As for Herro's outlook for China and MPEL? Steady he goes with his other China investments and wrt his allocation to MPEL, as of 12/31/14, Herro's international fund is the largest holder of MPEL (other than Ho and Packer's beneficial ownership that together comprise over 68% ownership of the shares) as noted prior. He was down some 20% on the position during the March Q... but the recent runup has cut that by a bunch...
Here's his comment on MPEL:
"...Casino revenues in Macau were weak due (January thru march 2015) to China's anti-corruption campaign, difficult year-over-year comparisons and a weaker macro environment... we remain optimistic about Macau's long-term prospects, given low penetration of Chinese visitors, continued wealth creation of Chinese citizens and large infrastructure projects, which should help facilitate the growth of Macau."
They are focused on Asia and not going to Spain or anywhere else in europe or the overdeveloped US market Jim...
See the preliminary annual report for some fun reading though. They have morphed from calling macau the world's gaming mecca and primary focus for the company as late as February, to now articulating that developing the Integrated resort franchise throughout Asia as the world's fastest developing market is the objective. As you know, a few of us thought Shelly was nuts for even considering it with LVS (we sold out the shares becauses of it before the big drop, and then piled back in to that name for the run back to $72 (out early) when they called off the gaff of going to Spain. Fully 56% of Spain's citizens under age 25 are unemployed... and they can't all work in casinos like is the case on Macau.
This afternoon BAC issued a dazzlingly insightful (not) ratings update suggesting the stock will likely trade in a range of between $21 (low) and $31 (high) over the near term. That is some insight... LOL and now there are almost as many sells as buy ratings.
So his impact took out yesterday's gain over the last two hours of tape painting...wonder how long his "15 minutes of impact" will last tomorrow...
On another note, obviously the company has decided to do other things with their capital besides buying shares in down here this Q... maybe they have news coming on where they will redirect their development efforts first (e.g., accelerating the expansion phase of COD Manila or perhaps building an art museum for now on the Studio City site)? LOL
There are precious few analysts and even less pseudo journalists who understand anything about this business, especially the fragmented Asian market. So if you are asking why are the dopes at Zacks, Shuli Renn and james Detar so weak covering the sector, it is simple... Shuli is just regurgitating what analysts have to say. She herself wrote she was far too bullish on the group through June 2014, and it wasn't until then that Grant Govertson (Union Gaming) was early to pull his buy rating on the group,followed by EVERYONE freaking out when former security minister and noted "political foe" of Xi Jinping as part of exiting regime, that Lawrence Ho said -- in the first week of August last year -- that mass growth was going to be more like half the 30%+ seen ytd through July, and VIP would likely remain pressured until after year end. The coverage cut estimates, but still around 14 of the 18 publishing analysts retained their BUY ratings on the sector. Now, only about 1/3 still have buys -- the biggest sentiment washout seen since 2008, and the quality value guys have been buying stock as the group has rolled over and down hard.
In sum, this journalist group adds little except to learn what hedge fund short the stock are pressing into them as parrots.
Manila is a special case though. They really did not open until Feb 2 -- not the whole Q... and even at that they did not have the VIP suites open until about now. The forbes writer (cohen) and calvin ayre get it -- good those names and COD manila to read knowledgeable input.
The analyst have discounted Manila's propects from the start and continue to have low expectations. Good for the story when they begin hitting it out of the park -- but that may take several Qs to accomplish. Again, they have yet to even step up to the plate with VIP efforts at COD, but that is underway right about this Q.
meant to add that when you wrote "VIP went away," those who know the data understand you mean the corrupt pols playing with PRC money illicitly garnered, and the political enemies of Xi Jinping's regime and those concerned with being caught up in the former Zhou's (China's former National security minister now being prosecuted for massive fraud) sphere of influence, along with anyone else who is concerned with being seen playing high stakes table games while having careers inconsistent with the resources needed to play like that. As for the legitimate elite wealthy that never left -- you know, the other 60% or so still playing on macau in the big, legit and open to scrutiny VIP junkets? Those guys never left as you know... still they control about 80% of play and what is "gone" is all the little VIP junkets and the buckets outlined above.
Revisiting the critical part for MPEL, VIP matters less to them and LVS than any of the other operators on Macau, and they are not actively pursuing it on Macau... yet the efforts to redo salons for three large tours (e.g., the three new salons incl one for SunCity at Altira) are yielding results as seen in Altira's VIP actually up serially last Q. obviously Galaxy is doing just fine catering to VIP as they are showing YOY increased VIP as LVS and others try to redirect efforts to mass as LVS and MPEL have done more successfully than others than others.
You know better than most that MPEL's VIP program is now going to big serious at COD Manila in the Crown Suites -- some 300 of them in that premier hotel. All of Sy's family's pals and the connectivity that Ho and Packer can bring to bear, showcasing what they can do in Japan for example -- are going to be on display over the next year or so as they ramp up Manila with VIP and quality mass.
Good comments Dave... precious few posts with any value here of late.
Galaxy will be an interesting case, to be sure. They continue to emphasize VIP and have actually ramped share on that premise as I am sure you know Dave, but that focus along with the theater in G1/redone "broadway" and "shopping/dining" don't really ring the bell on "diversification". Just the opposite really -- G2 positioning in the market is entirely consistent with the buzz in early November that they will get only 100 tables with Galaxy 2.
As you know well, Studio City is a different story on "diversification." LVS desrves some big green checks on diversification for all of the big convention spaces, but GFL getting them to be cost effective anytime soon pending the infrastructure projects and all the bs noise on group visas and grind mass spending per visit. Re Studio City and MPEL's focus on entertainment at COD and SC, though, if any company is going to be rewarded and held up as the "poster boy" player for responding to what Beijing and Macau govt has asked for in terms of building entertainment and tourism attractions, MPEL is in the pole position... Additionally, the recent Li Gang and session notes on "not sacrificing" MacauGGR (the Golden Goose) really need to be followed up with good policy actions by the SAR and Beijing... lots of investment capital will rapidly be diverted to other venues if Macau and central planners are not supportive of Macau's "special purpose" and distinction of being and remaining the biggest gaming and entertainment resort in Asia and the world.
see my email Dave...
Fidelity has not filed a 13g and the only place I see your number is in a recap on yhoo as of January 31 AND THAT FIGURE IS "SHARES HELD" -- NOT A "BUY" in their international diversified fund. I would not rely on any such disclosures on yhoo for anything important. Pending a 13d or 13g update, the year end 13F is an objective source to reference.
Past that, unless Fidelity holds ADS shares in another fund, it seems close to certain they were one of the big sellers between year end (stock was at $25.40) and now, having reduced holdings from 5,926,000 shares to 3,429,500 shares, roughly 2,499,000 shares sold chasing the price down. It is highly likely that as soon as a sloppy seller like that stops buzzing on the trading desks, other quant algo players see it and turn on the buy programs again...perhaps about the same moment that Morgan Stanley put out their screaming buy note which they then yanked the rug on some 30 days later on Feb 20 or so. In fact, a reasonable and repeat scenario could have been that the MS desk decided to play a big reversal prompting Fidelity to then resume sloppy selling. Fido may well be out by now, with the MS quant guys using Fido's shares to cover. This is how the hft world plays...
We'll see where Fido is if they file a 13G or D (over 5% holdings first) or the next 13F in mid May, but I suspect they are down to no more than the 3,429,500 and would be unsurprising to see them out altogether. It would not be novel either to see that they are back to buying again now, sensing that the worst of the selling is over, even though it may well have been their own liquidation that led to all the quants front running fido down into March 31,2014. It would not be the first time a big mutual fund kicked itself in the head down and then up over and over again.
If you want to see some impressive conviction, see harris and Oppenheimer adds last Q. Both added more than 10m shares between $36 chasing down to low $20s now retested again.