One day soon more than just the core institutional ownership is going to figure out that MSC's build out is going to be at least as valuable to the corporate owner as anything that will be built in Japan in no less than 5-6 years from now... Japan will be valuable, but on a discounted cash flow valuation basis, MPEL's story is stunningly cheap right now, right before the next doubling leg of ebitda growth and operating leverage kicks off in manila and then Studio City.
Studio City will be done in two phases now. One will be done mid year 2015, the "expansion phase" they are now telegraphing likely a couple years out -- maybe 2H17 behind Tower 5 at COD Cotai 1H2017? Meanwhile, the "expansion phase" now being planned for COD manila is going to be critical operating leverage capture as well. While we wait for that, it is fun to note that the highest published estimate for CY15 on COD Manila implies ROIC of less than half MPEL's run rate for 1H14 annualized.
btw, fun to point out that Macau Bus Daily and GRAsia articles this week errantly suggest "a filing" noted MPEL had a budget overrun of $300m update this week. LOL More "brilliant" reporting -- these guys might be good enough to make it as equity analysts! No, there is no new "overrun" in the foreign market 10Q... the $300m (MPEL's share) is as disclosed a while back when they increased the Studio City budget for as yet undisclosed project enhancements -- perhaps including initial planning and approval filings for the "expansion phase" now being discussed in MPEL's filings. Clarifying my earlier comments, that was done earlier this year, around April from recall or so when they increased the development budget for the INITIAL phase of COD Manila when they signed up Hyatt and Dreamworks and who knows what other cool entertainment ideas they have for that venue. Weak sauce reporting and sellside coverage of this sector is awful and too funny...
I didn;t see your reply to my comment until now, but the data sets/lookback add perspective consistent with the thrust of my comment, i.e., $22 was stupid cheap in early July 2013, relative to catalysts coming for MPEL, it is even cheaper right now at $29.
Last year I called the stock stupid cheap at $22 as we came close to doubling our rebought core position put on below $13 in late 2012. Here's a quick look at perspective then, and why it is even cheaper today.
Beginning with 2013 GGR growth vs 2012, the YOY comps for Macau GGR included the huge impact of all of LVS' new properties coming up the "opening ramp", meaning that unless a commensurate percentage increase in new property openings was happening this year, growing more than 15%+ in 2014 was going to be premised on solid mass growth (smoked that even if "slowing to 20% now as conversions are done) even without footprint growth for Macau this year and a fairly stable if slowing VIP growth curve. We know that VIP presumption aired by Ho and all other CEOs has been thumped on the conversion to premium mass effects as well as private jet fleets diverted to Vegas, AND of all the noisy corruption headlines and low profiling done by the tours, players and all the rest.
Still, comps of 14/13 YOY through May showed GGR growth was 16% vs 14%. June's (and later July's) data had the swing on the WC, VIP and other pieces this year, even having a net drop for June, against growth of 20% GGR for the 2013/12 period -- and STILL the stock traded off in early July 2013, down to the $21 level that was the thrust of my comment above. The ytd GGR yoy was 13% vs 15% 14/13. It is not until we compare July's data that we see ytd GGR down to 10% vs 16% the PY. In the lookback, it was the run up into EOY13 that made the 19% happen, particularly the 4th Q which included the 31% for Oct Golden Week.
Will key catalysts for the group (Golden Week, infrastructure progress, new IRs for MPEL, WYNN and MGM and Galaxy IRs) begin being discounted more favorably in days, weeks or months? How many days before MPEL-specific catalysts (COD manila, Studio City, Tower 5, Altira VIP repositioning, COD revamps) will be more appropriately be reflected in valuation?
Day follows night.
Exceptionally well said... as you have processed well, we were saying the stock had gotten ahead of itself at $43 (it topped the next day) in january and so sold out our trading sleeve and hedged half of the core back to the 50d ema (then $37.50 or so without checking). After the double top at $45.50, we waited for the shares to ease again (which it promptly did) and tiptoed back in to load what is now our largest ever trading sleeve here just below $31.
We are very comfortable that will be a great trade for us before too long from now, even if we retest the left tail (which we thought would be as low as $27 as discussed here a few times) as the group grinds along the bottom here...
As you said well, essentially no one, not us, the group ceo players or any analysts foresaw VIP collapsing as the central planners waved their corruption hands and all of the noise crumpled the sector AFTER the WC crimp days in early July this year. We hedged some of the ride down from the mid $30s with paired shorts on the other U.S. listed co's and had fun with a few quick longs as shared here, but for the most part our view has been to let the core sit unhedged (owned at $17 w ave) and add a bunch sub $32 and then sub $30 and more the last two weeks while the fire sale continues. Several pm who were hedged (box shorts, pairs and OTM call writes) are now back to unhedged long; all are poised to join the RIP higher when the news flow turns.
It has been rough to own any of these stocks, just like the OTAs were rough last year for a few months and the aiurlines the year prior. LOL From a strategic, tactical, financial and valuation standpoint, though, MPEL is better positioned than any of the 4 U.S. listed companies in the event of a flattish or even more moribund growth environment for VIP and mass environment in Macau. We like the risk reward math these days.
your comments are once again hardly worth placing back on keel, but i will for anyone confused by your weak sauce comments trying to dis me.
The gaming group is not buried. MPEL is still up over 30% since July 2013! The sector flush took out all the weak hands and the future is bright... just ask Packer and Ho owning 67% with their companies, why they haven't sold any shares and pushed the $500m buyback authorization through on top of their annual renewal of authority process.
You say I "have been totally wrong since the beginning of the yr". That is plain ridiculous, sounding like something gump barebutbob would say.
In context, recall that our price action calls between 2012 and January '14 were close to perfect at every turn, incl back in the core at $13, doubling at $22 July '13 on the pullback from $26, trading sleeves along the way up and in July (stock dropping to $21) calling for $30 and then 35 by EOY13 and then adding $40 was possible by EOY w/momo funds chasing it. I also wrote the pullback in late Fall '13 from $37 to below $34 was a fabulous chance to add shares (we did a bunch). The stock got within pennies of $40 by yr end... in fact all of that was spot on.
Now, let's review my 100% correct assessments shared this yr.
1. Selling out the trading sleeve at $43 and hedging (box short) half of our core position (owned @ $17 w ave) on the first top, suggesting the stock would likely soon pullback to the 50d ema (then $37.50 or so) to wash out the momo chase then going on. As pointed out twice prior here, several here disagreed with my view -- THAT was when YOU said the stock would go to $75 this yr, remember? Search the word "definitions" on the board back in mid January for a fun recap of me telling people to give some thought to who was hedging/selling out some shares above $43 (incl us, very LT bullish on this story and stock).
2. We were also very correct when we suggested hedging a couple of times this yr, sharing
2. We were also very correct when we suggested hedging a couple of times this yr, sharing that we were with paired shorts on LVS and MGM (taken off early i shared later when we covered with MPEL at $31), short dated call writes.
3. We made four tiny (3-5k shares) long trades on WYNN between $190 and $214 ytd, sharing our timing views each either here or on the destroyed WYNN board, and, just because it was so easy, we also flipped small trades on LVS several times, many of which we shared right here for fun.
4. We also have said MPEL would outperform on mass, which they have robustly done and likely will continue to do and Bain's and others' work on "channel checks" suggests is continuing up through last week as MPEL's share of crimped overall GGR (VIP dynamics) expanded to 13%. Great result vs others now trying to emulate MPEL's elite/premium mass execution.
5. We've also been very right that the Chinese economy would not collapse or even have the sky fall on it. LOL Those scenarios or Putin rolling tanks or another big terrorist event were the kinds of things we suggested could create global economic slowdown sufficient to drive left tail risk on MPEL to $27, but none of those things happened... yet we have touched $27 on the corruption and 13 other less real news items driving the low profile of whale play in Macau (and use of Steve's and others' private jet fleets to Vegas driving the surprising results there so far this summer -- n.b. we think that dynamic is unlikely to persist to the benefit of macau when that happens).
Where have we been "wrong since the beginning of the year"? cont
Where have we been "wrong" this year?
1. Along with EVERY CEO and analyst (buyside and sellside) following the niche, we did not foresee the big "corruption" crackdown and noise pollution that has quelled gaming rev in Macau overall. We thought Macau's overall GGR would get to and perhaps beyond Ho's UPOD est in May '14 of 15% for CY14. That was a big nut given the lack of new IRs coming online/up the growth curve in '14 as noted often here, and while the GGR is headline fun for Macau naysayers, it really doesn't matter to MPEL's plan if VIP in macau is crimped for now. Consider that Altira's VIP was down by over $100m last Q YOY... that alone was the difference in MPEL's reported results last Q, even before considering MPEL light hold vs peers all WAY overline last Q (mass and VIP), and Altira "repositioning" is now underway.
2. Although we thought the bottom was in at $31 or so and then again at $29.76 on the retest, if you read our comments back then and since, we have couched that in terms of "barring further erosion in the global economy or other unanticipated events." In context, we were "wrong" for the reasons it happened, but $27 is our "left tail/$27 scenario" which we thought could come about, and, frankly, SFW if the stock drifts further before turning sharply higher when it begins more appropriately discounting MPEL superior position to peers f24m in terms of footprint growth, strategic, financial posturing, and adj ebitda outcomes. There is NFW MPEL should be trading at a 30% or so ebitda metrics discount to the group, esp MGM and LVS, for the reasons amply discussed here over time. THAT is opportunity. Just for the naysayers, let me be clear: we are NOT saying the stock can;t drift down further with the market or group if that happens. BFD As for near term price action, recall the stock bounced from $29.75 to $37 in less than 2 weeks back in June; anyone unhedged short here as it grinds along the bottom is playing with fire.
3. We've been wrong so far this year that they would opportunistically use the buyback authority to take out shares before the adj ebitda run rate doubles as manila and Studio City and Tower 5 at COD come up the ramp, but Packer and Ho are some of thew world's most wealthy guys and already own 67% of this company... we suspect they could give a FF where the stock goes near term unless it makes buybacks even more efficient and advantageous for ALL shareholders in this as an investment (vs short term trade). It will be interesting to see if Ho's forecast that GGR will be back to double digit growth next year comes to pass... if they believe that, the corp finance math of doing buybacks down here is stunningly compelling... about 3 times what their "best in class" ROIC execution over the last three years has shown.
good to see the market share data progress given MPEL is not focused on Macau VIP until they are done revamping/repositioning Altira. Also, Bain's work suggests VIP holds are weak for the group in aug; not a surprise given they were unsustainably fat VIP & mass everywhere, except at MPEL's properties last Q.
Below "matrix" suggests Studio City should push MPEL's share to 16-17% + in 2015. We don't think SC will have anything close to that impact, even during CY16, the first full yr of operations.
Studio City won't come online until mid-year 2015 and ramping will take time, but even looking to 2016 and considering the focus will be on broad "mass" there, in our modeling they will be fortunate to capture more than 2% of the current aggregate market (assuming no growth from current run rates for Macau). Further, to hit "16-17%+" of total market share for any year before Tower 5 is ready in 2017 or the huge expansion of SC now in planning is done would require VIP to remain subdued/flat until then (not a bet we'd make). Other co's want to grow too. LOL
Moreover, the 16-17+% share in 2016 would further require Studio City to generate at least $3B of GR during 2016, the first full CY year of operations. If the overall market grows says 5% this year, and, say 2/3s of Ho's 15+% for 2015 and 10% again in 2016 as the Lotus Bridge and rail are all up and running and 8 new Macau properties and additional remodels come on line, and the rest of MPEL's franchise holds at least market share (a bet we are making), to get to 16.5% share for MPEL Studio City (total property) would have to generate an incremental 27% or say $1.3B for 2016 or a total of $4.3B (again, 60% of which would belong to MPEL). That is exceedingly optimistic vs our view, and some 40% or so on top of the highest published estimate on SC for 2016. (Most analysts have next to nothing for Manila in CY15 and only small numbers for Studio City 2015 as the "mid year" timing is uncertain and mushy.
it reflects their "mass emphasis" alright...
MPEL's "mass emphasis" continues to be brilliantly executed and is now most of the pack is trying to imitate their success.
In fact, it is going so well that they are now experiencing better share than last year DESPITE losing substantial share of the VIP pie (~50% of MPEL's revenues last year and down to less than 20% this year). Gaining overall share while hugely scaling down relative share of VIP market is rough math, but MPEL is making it happen...
To your "actual results are not appreciated by the market", you obviously mean the near term price action... MPEL's progress and superb business plan execution is certainly "appreciated" by the 13F filers adding shares between $31 and $37 last Q... and the buysiders adding shares since. They are not on for the share price yesterday or tomorrow -- it is all about the longer visual horizon with MPEL.
Bain does a good job summing why "[MPEL] remains our top pick." We agree with his assessment and think MPEL's relatively cheap valuation smacks of opportunity for those who can handle Army boot camp. MPEL is the only stock we own in the sector (just sold out half of DAL after the latest nice bounce and AAL/OWW news) to add a few chunks to MPEL down here. btw, last week we said we may be playing WYNN down around $190 for a trade near term; however, we'll pass on that after seeing the 6% drop in overall GGR for August -- which Bain and at least 4 other analysts have said was driven by slammed VIP RCV and weak VIP holds. Nutty to think most pm not familiar with the sector don;t even know what that means...
Old news, but MPEL's business plan (focus on premium/upper crust mass players) has them ideally situated for this Macau trough, particularly while they "reposition" Altira and get going on opening COD Manila, which is conveniently closer to China/HK than is Vegas (LOL). Just now, 10:20 ET, seems we are not alone on the bid down here at $27.
Now that the central planners and Macau pols can visibly see 3 months of VIP shunning of Macau trips and what their noise on Visa, UnionPay and economy-wide "corruption crackdown" for various industries throughout China is doing to Macau GDP/revenue generation, perhaps they will enjoy seeing WYNN, MGM, LVS and MPEL continue to use private jet fleets to take key VIP tours out to places such as Singapore, Vegas, and, soon, Manila.
If you haven;t used the initial authorization yet, this would be a GREAT day for pedal to the metal on that $500m buyback authority, just prior to announcing the COD manila opening schedule.
On that last point, it is hard for anyone to book a Golden Week or any other fourth quarter visit to COD on Manila if you guys don;t let the world know when it will be open. Some news on that would be good later this week since your development partner in Manila has said you'd be open for Golden Week (starts Oct 1).
Steve and Shel need to be getting busy today too... LVS bought a bunch of their shares in at $82 in the March Q...They must really love it down here another $20/share (25%). And 8 thumbs down on this editorial today? LOL
Looks like the putz trading club thinks shorting this group when it is already down 30%+ of late and another 6% today is smart trading? GFL when Ho and Packer come loaded for bear and pull the borrow on their shares and watch the algo programs all scramble to cover in by the close. LOL
Just blew out the other half of the DAL sleeve and blew out the TPX as well to be ready for the MPEL turnaround parade... staying on AAL and ALK for now, and how about the three online travel co's... good to have the force offset to the Macau meltdown for however many days are left in Macau's "sky is falling" VIP tours and street sentiment.
Blew this out today... round 7 at last count since 2009. Special thanks to those shorting this to below $48 this year so we had the chance to reload a nice sleeve... we really appreciate you guys and that self impale work you do for the benefit of those opposite lame trades.. LOL
"watch the algo programs all scramble to cover in by the close"... LOL
Up over a buck from the washout low today. Not saying it can't go lower, it certainly can in this dog S sentiment environment for Macau names, but given that MPEL's business plan will drive the best YOY gains in adj ebitda (whether or not VIP in Macau gets back on a positive growth curve ANYTIME over the next three years) as the % increase in footprint for MPEL is dramatic on macau over that timeline, we were happy to add to this down here. The other Macau names are not so nicely situated, and none of them have manila coming online as MPEL does. It will be good to have them done with capex for the initial phases of Studio City and Manila and have up and running annualized adj ebitda of $750m or so combined for these two properties once they are up the rollout curve.
Seems we are not the only ones figuring out that others are going to be hurt more than MPEL if Macau continues to grind along the murky bottom for a bit. Of the four US listed companies, WYNN and MGM's Macau books are bearing the brunt of the VIP crimp, and LVS' business is a layer down from the cream anyway, but still has big $ on VIP (not in % terms). On the hold/VIP notes being discussed by exec mgmt teams in macau with the analysts and buyside research staff, some here may recall that the other three companies had overline fat holds on VIP and mass at most properties last Q, but MPEL had crimped holds in comparison and vs expected... adj for that, MPEL's mass book was by far the best of the bunch, a trend likely to continue as seen over the last couple of years.
Another piece is that LVS'MBS may see some benefit as macau drives low profiling from wealthy players and tour operators. COD Manila's launch should benefit as well in a month or two?
Hopefully the shorts are enjoying themselves. Glad to see the sky fell in and then everyone realized it was not the sky, merely heavy fog the buyers today can see past.
10 thumbs down? That is a LOT of cork soaking for just one comedic editorial! LOL
I can't wait until yhoo enables the IDs on recommendations.... should be any day now. ROFLOL
Wait... you mean the sky is NOT falling and the central planners policy initiatives to focus on more service sector growth/consumerism vs being too reliant on manufacturing/export are beginning to show up in data now after july's numbers being the worst in a long time? And just maybe more stimulus is coming from that big fat war chest balance of trade?
Service sector activity rises solidly, while manufacturing output growth slows
HSBC China Composite PMI™ data (which covers both
manufacturing and services) signalled a fourth successive
monthly increase of Chinese business activity during
August. The HSBC Composite Output Index posted at 52.8,
up from 51.6 in July, and signalled a robust rise in activity
levels. Furthermore, it was the strongest expansion of
business activity in 17 months.
The improvement in the headline index largely reflected the
growth recovery recorded in the service sector, as
production growth slowed at manufacturing firms. Service
sector business activity expanded at the fastest rate since
March 2013, and contrasted with a stagnation of activity in
the previous month. This was signalled by the HSBC China
Services Business Activity Index posting at 54.1, up from
the record low of 50.0 in July.
Activity growth was supported by further expansions of new
business at both manufacturers and service providers in
August. That said, the rate of new order growth at
manufacturers eased to a three-month low. Meanwhile,
service sector firms recorded a solid expansion of new
business that was the strongest since January 2013. At the
composite level, new work rose at a moderate pace that
was slightly faster than in July.
and the ECB/Draghi rate cut signals suggests they are ready for additional measures ("monetary easing") to use the ECB's balance sheet in get after boosting liquidity like Uncle Ben did here to facilitate growth.
Good posts guys... that is Ren's idea of "balanced" blogging. LOL
Notice how she has stopped talking about all of the bs noise and now says it is the "political headwind" (note singular) that has caused the VIP swoon and that one day soon some VIP may come back when that "headwind" dies down a bit? Surprised she didn't mention that VIP players may need trips out to unauthorized UnionPay card swipe machines in the parking lot to play more... just to round out how little she knows about the business one more time.
another quality post. You are one of the few posters here consistently doing legit diligence... so you know the "corruption crackdown" is mostly about hanging people who take bribes on poison milk for infants, politicians receiving money under the table, and other deliberate illegal activities largely associated with construction and heavy industry having nothing to do with Macau or junkets, or even money transfers.
Longtime pm in this niche understand noise items and that the only "serious corruption" that has been associated with Macau over the last three years is the combined total of 16 idiots with unregistered UnionPay card swipe machines and peanut $400k of cash in their trunks, and that China's central gov't wants to make sure that does not happen in the future. Even Tam said that concern is now done (of course, he's looking at trying to stay in his job with the political rhetoric goes on and gaming tax revenues began being visibly crimped last Q.
As for when the group will meaningfully jump, we think it will take more than headlines saying the "corruption crackdown campaign" (rhetoric vs substantive for Macau activity which has had a quelling/low profiling effect on players/tours) is now over. Despite battering of the stocks (the group is down 30+%), it won't take much to get pm to pull hedges (LOL matrixtrade and his new pen pals mytek/idiotpumper and moronic blacqnite don't understand the terms and try to dis me), but it will likely take commentary from exec teams that the junkets are coming back in force. Some will likely be surprised to see Vegas' purported GGR resurgence slide hard when that happens, but those who understand why the private jet fleets were being deployed to China last Q and into this Q will not.
The key point is that the sky did not and is not falling on China and, derivatively, China's VIP and premium mass players have not had their wealth or enjoyment of gaming hurt & they will be back to Macau just as day follows day