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.
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.
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.
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.
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
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
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.
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.
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.
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...
recapping MS as a prime example of the weak "analyst" group following this sector, excl Bain the entire confederacy of dunces really ought to be flushed out along with all of the stocks dragging, teeth first, along the bottom these days...
Sellside analysts are supposedly adding value, but in this sector (ex Bain) they are a joke good mostly for the buysider pm/staff entertainment. Consider that MS had a buy on at $42 with a raised price target of $50 in March... and then lowered it to "market perform" (~same as sell) at $32 in mid-June, and now, at $29, ups it to a buy with a PT of $33? I think that team and their "research" director need to be replaced after publishing such laughingstock "recommendations."
good comments guys.
Pending better news flow for the group, WYNN keeping its private jet fleet east of the Pacific (so just "Latin America" LOL) vs weekend extraction from HK so VIP can play in Vegas with a low profile, and the serious outperformance coming for MPEL as the new properties come on line, there are plenty of dippy media noise and concerns about wether gaming revenue will forever remain stuck on flush. LOL
Conversely, pm who actually understand the markets and the business continued adding MPEL shares during 2Q (between $30 and $37 - see chart and the "13F" thread posted last week), and hopefully MPEL will have used a bunch of the $500m buyback authority before renewing the shareholder approval process again in the 2015 proxy as they have laid out for themselves.
Given that packer and Ho's companies will own some 69% or so of the shares once the initial $500m repurchase program is completed, longs are riding with good company from a shareholder wealth creation standpoint.