MACAU PREMIUM MASS THE STANDOUT NOVEMBER 9, 2016

Transcription

1 TEAM TODD MEMBER JORDAN ONE TEAM SEAN MEMBER JENKINS TWO FELIX TEAM MEMBER WANG, CFA THREE TEAM MEMBER FOUR MACAU PREMIUM MASS THE STANDOUT NOVEMBER 9, 2016

2 DISCLAIMER DISCLAIMER Hedgeye Risk Management is a registered investment advisor, registered with the State of Connecticut. Hedgeye Risk Management is not a broker dealer and does not provide investment advice for individuals. This research does not constitute an offer to sell, or a solicitation of an offer to buy any security. This research is presented without regard to individual investment preferences or risk parameters; it is general information and does not constitute specific investment advice. This presentation is based on information from sources believed to be reliable. Hedgeye Risk Management is not responsible for errors, inaccuracies or omissions of information. The opinions and conclusions contained in this report are those of Hedgeye Risk Management, and are intended solely for the use of Hedgeye Risk Management s clients and subscribers. In reaching these opinions and conclusions, Hedgeye Risk Management and its employees have relied upon research conducted by Hedgeye Risk Management s employees, which is based upon sources considered credible and reliable within the industry. Hedgeye Risk Management is not responsible for the validity or authenticity of the information upon which it has relied. TERMS OF USE This report is intended solely for the use of its recipient. Re-distribution or republication of this report and its contents are prohibited. For more details please refer to the appropriate sections of the Hedgeye Services Agreement and the Terms of Use at 2

3 MACAU CATALYST OF PREMIUM MASS EFFECTIVE ROOMS MANAGEMENT DRIVING ACCELERATING MASS REVS... The Hedgeye Mass Tracker has been predicting positive and accelerating mass revenue growth since we rolled it out in Q % in Q2 to +10.4% in Q3 to % in October. Length of stay driving length of play driving win per visitor. What happens when avg bet turns positive?...especially PREMIUM MASS THIS HAS LONGER TERM IMPLICATIONS The return to growth is faster and greater than anyone anticipated. Higher consumer confidence/housing prices, cessation of corruption headlines and VIP conversion through the higher margin mass channel all have positive implications going forward for Macau LONG LVS HK COULD WYNN BE A SLEEPER? It s no secret we ve been positive on LVS and Galaxy during our long Macau call. WYNN, not so much. However, investors do need to consider that if premium mass is indeed in aggressive recover mode, Wynn Palace could be a prime beneficiary. Stay tuned. 3

4 MACAU THE STOCKS 130 EQUAL-WEIGHTED MACAU INDEX 120 Excess capacity concerns surrounding the opening of Wynn Palace HEDGEYE MASS TRACKER FLAGGING YoY GROWTH INDEX COMPONENTS: MPEL, LVS, MGM, WYNN SOURCE: BLOOMBERG 4

5 MACAU MASS DRIVERS

6 MASS DRIVERS KEY POINTS AVG BET AND MASS TABLE PRODUCTIVITY ARE STILL DOWN YOY Yet, mass revenues still grew 10.4% in Q3. While average bets are still down YoY, they are approaching parity with last year. This is a key variable in driving mass revenues BUT LOWER RATES AND MORE ROOMS DRIVING LENGTH OF STAY/PLAY AND REV/VISITOR HIGHER We think the Cotai management teams have been effective in managing the significant number of new rooms in the market. Lower room rates are driving higher occupancy despite the huge increase in supply which is in turn driving higher length of stay/play and spend/visitor PREMIUM MASS ALSO CONTRIBUTING TO HIGHER REV PER VISITOR AND MASS GROWTH The return to growth is faster and greater than anyone anticipated. Higher consumer confidence/housing prices, cessation of corruption headlines, and VIP conversion through the higher margin mass channel all have positive implications going forward for Macau 6

7 3 2 1 (1) (2) (3) MASS DRIVERS MASS TRACKER 14.7% MACAU HEDGEYE MASS TRACKER (Y/Y CHANGE) HEDGEYE ESTIMATE -9.2% -19.2% SOURCES: COMPANY FILINGS, HEDGEYE -24.4% -20.9% TOTAL MASS TABLE REVENUE (COMPANY REPORTED) -9.1% -2.2% 4.6% 10.4% 14. With MGM China s results in, we can confirm that Macau Q mass table revenues increased 10.4% YoY, its 1 st double digit growth quarter since Q This was higher than the midpoint of our last forecast of Premium mass was the big surprise this quarter. Sands China disclosed that premium mass grew 15% YoY in Q3 and Galaxy indicated strength in that segment. MGM China grew its overall mass revenue 22% YoY and that property primarily serves the premium mass segment. 7

8 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 MASS DRIVERS OVERTAKING VIP $0 MASS TABLE REVS VIP TABLE REVS Mass revenues have surpassed VIP revenues. We estimate that EBITDA generated from the mass segment (including slots) now comprises ~8 of total gaming EBITDA in Macau. For some properies in Macau, mass and nongaming EBITDA account for >9 of total EBITDA. SOURCE: COMPANY FILINGS, HEDGEYE ESTIMATES 8

9 MASS DRIVERS REV BREAKOUT MACAU MASS TABLE REVENUES Q Q Q Y/Y Y/Y Y/Y MGM $260 $ % -0.5% -10.9% LVS $985 $ % -7.9% WYNN $257 $ % 12.6% -11.5% MPEL $570 $ % 26.5% 18.3% GALAXY $641 $ % 29.4% 20.3% SJM $685 $ % -7.8% -14.9% TOTAL $3,398 $3, % 4.6% -2.2% SOURCE: COMPANY FILINGS, HEDGEYE Q Q Here s how we get to 10.4% Q3 mass revenue growth. We use company data since the government data is not adjusted for the smoking ban related table reclassifications. While subject to volatility in the mass hold rate, MPEL, with the inclusion of Studio City, had the highest YoY growth among the concessionaries while MGM surprisingly, had the 2 nd highest. SJM was the only concessionaire to suffer a YoY downturn. 9

10 MASS DRIVERS PREMIUM MASS Premium mass probably grew in Q3 in Macau Evidence of growth Sands China disclosed 15% growth in Q3 premium mass Galaxy alluded to Q3 premium mass growth Wynn drove premium mass growth with Wynn Palace MGM grew total mass 22% YoY but the property is primarily premium Premium growth earlier and higher than expected Here is what we heard from our contacts: Higher consumer confidence/home prices in Mainland China Conversion of some VIP players into higher margin mass Premium coming back as corruption headlines wane 10

11 MASS DRIVERS OBSERVED AVG BETS HKD 8,000 MACAU OBSERVED AVERAGE TABLE BETS HIGH LIMIT/PREMIUM (LHS) BASE MASS (RHS) HKD 3,800 6 MACAU OBSERVED TABLE BETS (Y/Y CHANGE) HIGH LIMIT PREMIUM BASE MASS HKD 7,500 HKD 3,600 HKD 3,400 4 HKD 7,000 HKD 6,500 HKD 3,200 HKD 3,000 2 HKD 2,800 HKD 6,000 HKD 5,500 HKD 2,600 HKD 2,400 (2) HKD 5,000 HKD 2,200 HKD 2,000 (4) HKD 4,500 HKD 1,800 (6) SOURCE: HEDGEYE AVERAGE S BETS STILL LOWER AND SOURCE: HEDGEYE Observed average bet continues to fall YoY but is improving. Base mass may have already turned positive. Higher average bets would be incremental to already positive volume metrics: visitation and room nights. 11

12 MASS DRIVERS TABLE COUNTS 6,000 MASS TABLE COUNTS VIP TABLE COUNTS 5,000 4,000 3,000 2,000 1, MASS TABLE COUNTS (Y/Y CHANGE) VIP TABLE COUNTS (Y/Y CHANGE) (1) (2) (3) SOURCES: COMPANY FILINGS, HEDGEYE SOURCES: COMPANY FILINGS, HEDGEYE AND TABLE SUPPLY IS UP New Cotai supply is almost all mass while VIP to mass table conversions continued. Thus, mass table counts are up big YoY and VIP are down. These are our estimates. 12

13 $10,500 $10,000 $9,500 $9,000 MASS DRIVERS TABLE PRODUCTIVITY LEADING TO LOWER TABLE PRODUCTIVITY, BUT US $ $11,000 $8,500 $10,267 MACAU MASS WIN/PER TABLE/PER DAY $8,965 $8,887 $8,507 $8,373 With the additional mass table supply from the new Cotai properties and VIP conversions, mass tables are way up and win/table/day continued to decline in Q3. $8,000 $7,939 $7,500 $7,483 $7,000 SOURCES: COMPANY FILINGS, HEDGEYE ESTIMATES 13

14 3 25% 2 15% 1 5% (5%) (1) (15%) (2) MASS DRIVERS ROOM SUPPLY MACAU HOTEL ROOM SUPPLY (Y/Y CHANGE) 15% 1 5% (5%) (1) (15%) (2) ADRS MACAU HOTEL ROOM RATES (Y/Y CHANGE) SOURCES: MACAU HOTEL ASSOC., DSEC, HEDGEYE ESTIMATES HIGHER ROOM SUPPLY AND LOWER RATES. More hotel rooms = lower room rates = a pick up in visitation. 3- MTH MOVING AVERAGE WAS USED SOURCES: MACAU HOTEL ASSOC., HEDGEYE ESTIMATES 14

15 4 35% 3 25% 2 15% 1 5% (5%) (1) (15%) MASS DRIVERS HOTEL STAYS ARE DRIVING HOTEL STAYS + OCC UP AND MAINLAND HOTEL GUESTS (Y/Y CHANGE) 4-STAR GUESTS 5-STAR GUESTS TOTAL MARKET OCCUPANCY Growth in Mainland visitation is broad based. Both 4 and 5 Star hotels are slowly benefiting from higher volumes of overnight visitors. TTM OCC is now positive for the first time since February TTM WAS USED SOURCES: DSEC, HEDGEYE ESTIMATES 15

16 MASS DRIVERS OVERNIGHT VISITATION 35% 3 25% 2 MAINLAND CHINESE VISITATION (Y/Y CHANGE) SAME-DAY VISITATION OVERNIGHT VISITATION 2Q 2016 INFLECTION POINT 3 25% 2 TOTAL MAINLAND MAINLAND CHINESE TRAVELING W/ IVS 15% 15% 1 5% (5%) (1) 1 5% (5%) (15%) (1) TTM WAS USED SOURCES: DSEC, HEDGEYE ESTIMATES OVERNIGHT VISITATION HIGHER TTM WAS USED SOURCES: DSEC, HEDGEYE ESTIMATES 2Q 2016 marked the 1st positive quarter of overnight visitation growth since 1Q 2015, and 3Q continued the momentum. Overall, Chinese visitation is trending higher, but still negative on a TTM basis. 16

17 MASS DRIVERS SPEND PER VISITOR (1) (2) 8.1% MACAU MASS WIN PER VISITOR (Y/Y CHANGE) -15.8% -16.2% -21.8% -19.5% -7.5% -2.8% 5.1% 10.3% Effective hotel management of additional rooms driving visitation and length of stay higher. So despite lower average bets and lower table productivity, mass win per visitor is climbing and driving overall mass revenue growth (3) SOURCES: COMPANY REPORTS, DSEC, HEDGEYE 17

18 MACAU 3Q MARKET ANALYSIS

19 MKT ANALYSIS EBITDA GROWTH MACAU MKT Q EBITDA Q Q Y/Y HEDGEYE STREET ACTUAL vs. STREET Sands Macau $46 $51-11% $50 $44 $2 Venetian Macau $315 $256 23% $258 $260 $55 Four Seasons $63 $59 6% $57 $51 $12 Sands Cotai Central $177 $171 4% $155 $157 $20 Parisian $19 N/A N/A $8 $2 $17 Other Asia (Cotai Ferries) $10 $8 15% $7 $7 $3 SANDS CHINA MACAU TOTAL $629 $545 15% $534 $521 $108 Wynn Macau $151 $163-7% $168 $169 -$18 Wynn Palace $26 $0 $18 $27 -$1 WYNN MACAU TOTAL $177 $163 8% $186 $196 -$19 MGM MACAU TOTAL $150 $128 17% $118 $109 $41 Galaxy Macau $2,206 $1,683 31% $1,984 Starworld $536 $514 4% $540 Broadway $7 ($1) NM $9 City Clubs $26 $26 $28 Construction Materials $104 $94 11% $85 GALAXY ENTERTAINMENT TOTAL (1) $2,879 $2,316 24% $2,646 $2,532 $347 Altira $14 $13 6% $3 $4 $10 City of Dreams $170 $191-11% $187 $187 -$17 Mocha Slots $7 $9-17% $6 $5 $2 Studio City $53 ($0) NM $35 $31 $21 MELCO CROWN ENTERTAINMENT TOTAL $244 $213 15% $230 $228 $16 Overall, Wynn had the most noticeable miss in 3Q. Galaxy and LVS both had comfortable beats while MPEL reported a mixed quarter. Overall Macau EBITDA beat the street by $190 million. TOTAL MARKET EBITDA (2) $1,570 $1,348 17% $1,409 $1,381 $190 (1) IN HKD (2) ASSUMES CONVERSION OF GALAXY EBITDA INTO USD SOURCE: HEDGEYE, FACTSET 19

20 35% MKT ANALYSIS MASS REV SHARE MACAU MASS TABLE GAMES MKT SHARE 2Q Q 2016 TTM % % 25% % 20.2% 20.9% 16.8% 16.8% 16.8% 18.6% 18.9% 18.6% 15% 1 7.5% 7.6% 7.5% 7.3% 7.6% 7.4% 5% SJM LVS WYNN MPEL GALAXY MGM SOURCES: COMPANY FILINGS, HEDGEYE YoY market shares changed little in Q3. However, on a sequential basis it looks like Galaxy and MGM took share from SJM in Q3. Market shares for WYNN and LVS were little changed despite the opening of Wynn Palace and Parisian during Q3. 20

21 MKT ANALYSIS VIP STABILIZING? (1) (2) (3) (4) MACAU VIP REVENUE (Y/Y CHANGE) VIP WIN VIP VOLUME -4.4% -4.9% VIP volume and win continue to march their way to the black. The 2 nd derivative improved for the 5 th consecutive quarter. Macau VIP volume and win fell 5% and 4% YoY, respectively in Q (5) (6) SOURCE: COMPANY FILINGS 21

22 MKT ANALYSIS VIP VOLUME SHARE 35% MACAU VIP VOLUME MKT SHARE 2Q Q 2016 TTM 3 25% 2 15% 23.3% 22.2% 20.9% 15.4% 14.8% % 16.1% 15.8% 16.1% 13.9% 15.3% 23.3% 23.7% 22.9% 1 8.9% % SJM LVS WYNN MPEL GALAXY MGM SOURCES: COMPANY FILINGS, HEDGEYE In terms of VIP volume market share, Wynn Macau (WYNN) gained the most, taking share from LVS and SJM QoQ. Wynn had the best YoY performance at +24% due to the contribution from Wynn Palace. 22

23 35% MKT ANALYSIS VIP WIN SHARE MACAU VIP WIN MKT SHARE 2Q Q 2016 TTM 3 25% 26.6% % 2 15% 20.6% 20.8% 18.8% 12.9% 16.6% 15.8% 16.5% 16.1% 13.7% 14.4% 13.9% 13.8% 1 9.1% 8.8% 8.9% 5% SJM LVS WYNN MPEL GALAXY MGM SOURCES: COMPANY FILINGS, HEDGEYE Due to low hold at Palace, WYNN actually lost VIP revenue share QoQ. LVS gained the most VIP revenue share thanks to a high VIP hold of 3.6%. 23

24 6% 5% MKT ANALYSIS VIP HOLD % MACAU VIP HOLD % 3Q Q 2016 TTM 4% 3% 3.4% 2.9% % 3.6% 3.2% 3.2% 3.2% 3.1% 2.9% 2.8% 2.9% 3.3% 3.6% 3.7% 3.7% 3.3% 3.1% 3.2% 3.2% 3.2% 2% 1% SJM LVS WYNN MPEL GALAXY MGM MARKET SOURCES: COMPANY FILINGS, HEDGEYE YoY market shares changed little in Q3. However, on a sequential basis it looks like Galaxy and MGM took share from SJM in Q3. Market shares for WYNN and LVS were little changed despite the opening of Wynn Palace and Parisian during Q3. 24

25 MKT ANALYSIS VIP TABLE EFFICIENCY US $ $850,000 $800,000 $750,000 $700,000 $650,000 MACAU VIP ROLLING CHIP/PER TABLE/PER DAY $800,286 $681,076 $685,842 $660,032 $671,488 $662,088 $723,418 In the VIP segment, efficiency improved in Q3, likely helped by the push forward of VIPs gambling in September rather than October to avoid being seen by Premier Li in mid-october. $600,000 SOURCES: COMPANY FILINGS 25

26 15% 1 5% (5%) (1) (15%) (2) MKT ANALYSIS SLOT WIN MACAU SLOT WIN (Y/Y CHANGE) 12.3% 8.2% 6.9% -0.3% -2.7% -7.3% -6.9% -12.7% -20.2% -21.5% Macau slot win was flat in Q3 2016, its best quarterly performance since Q In terms of YoY performance, MPEL lead with 16% growth while MGM lagged behind with a 22% YoY decline. (25%) -25. (3) SOURCES: COMPANY FILINGS 26

27 MKT ANALYSIS PROMOS 18% 16% 14% 12% 1 8% 6% PROMOTIONAL EXPENSE AS A % OF MASS + SLOT REVENUES SANDS CHINA WYNN MACAU MPEL (MACAU ONLY) Wynn has definitely been the aggressor in mass promos given out in Q3 given the Palace opening. Sands China s promo rate actually fell relative to its mass revenues generated in Q3. 4% 2% SOURCE: COMPANY FILINGS, HEDGEYE ESTIMATES 27

28 MKT ANALYSIS MARGINS PROPERTY EBITDA MARGINS 3Q Q Q Q Q Q VS 2Q SANDS CHINA % 31.9% 33.2% 36.7% 3.5% WYNN MACAU (EX PALACE) 27.8% 28.8% 31.4% 29.8% 29.1% (0.6%) MGM CHINA % 27.5% 29.3% 32.9% 3.6% MPEL (MACAU) 25.3% 22.9% 22.1% 22.2% 24.1% 1.9% GALAXY 18.8% 20.5% % 22.4% 1.8% SJM* 7.5% * ADJUSTED EBITDA SOURCES: COMPANY FILINGS Quarter-over-quarter, margins improved for every operator except Wynn Macau. We believe a mix of good cost controls, higher mix of mass tables and high hold contributed to the improvement. 28

29 5% (5%) (1) (15%) (2) MKT ANALYSIS REVPAR BETTER Q/Q -18% MACAU QUARTERLY REVPAR (Y/Y CHANGE) 1Q Q Q % -5% -5% -16% -9% -4% -1% -1-6% -5% -18% -11% -6% Most operators reported another quarterly improvement in REVPAR. The exception was Wynn Macau. Many operators noted the highly promotional environment in Q3 will continue into Q4. (25%) LVS WYNN MPEL MGM MGTO 5 STAR REVPAR SOURCE: MGTO, COMPANY REPORTS, HEDGEYE 29

30 MKT ANALYSIS POSTED BETS HIGHER HKD 4,500 HKD 4,000 MACAU AVERAGE POSTED TABLE BET MINIMUMS HIGH LIMIT/PREMIUM (LHS) BASE MASS (RHS) HKD 1,600 HKD 1, MACAU AVERAGE POSTED TABLE BET MINIMUMS (Y/Y CHANGE) HIGH LIMIT PREMIUM BASE MASS HKD 1,200 4 HKD 3,500 2 HKD 1,000 HKD 3,000 HKD 800 (2) HKD 2,500 HKD 600 (4) HKD 2,000 HKD 400 (6) SOURCE: HEDGEYE SOURCE: HEDGEYE Potentially signaling optimism, casinos have been raising prices. Posted minimum bet levels on the mass tables have been steadily rising on a YoY basis. 30

31 MARKET PROJECTIONS/ESTIMATES

32 REVENUE PROJECTIONS MACAU GROSS GAMING REVENUES 2 HEDGEYE PROJECTION YOY CHANGE 1 (1) (2) 19% -3% -34% -4% (3) 3% We re projecting 2016 GGR to fall 4% while we should see a little bit of lift in GGR in Note that our top down forecasts reconcile with our individual company estimates. (4) (5) (E) 2017 (E) 32

33 OUTLOOK HE VS STREET $1,400 Q ADJUSTED EBITDA STREET HEDGEYE $5, ADJUSTED EBITDA STREET HEDGEYE $1,200 $1,000 $1,096 $1,156 +5% $4,500 $4,000 $3,500 $4,317 $4,462 +3% $800 $3,000 $600 $2,500 $400 $200 $341 $2,000 $1,500 $1,000 $1,230 $1,345 +9% $0 * NOT ENOUGH ESTIMATES FOR GALAXY SOURCES: HEDGEYE, FACTSET LVS GALAXY * $500 We remain above the Street for our two favorite names in the space. LVS SOURCES: HEDGEYE, FACTSET GALAXY 33

34 CONCLUSIONS

35 CONCLUSIONS WHY WE RE STILL POSITIVE AVG BET GETTING CLOSE TO TURNING POSITIVE We ve seen strong mass revenue growth with negative win per table and average bet size owing to greater revenue per visitor and overall visitation growth. However, average bet size may cease to be a tailwind as soon as Q4. BASE MASS STILL THE LONG TERM HORSE China remains underpenetrated in our opinion and we expect to see visitation growth for years to come. Base mass is the highest margin segment. DRIVERS OF SURPRISINGLY STRONG PREMIUM MASS INTACT TO BOOST 2017 VIP conversion to the higher margin mass channel seems to be happening. Moreover, previous premium mass players seem to be coming back to the market as the government clampdown on corruption wanes. These factors could drive another surprise in premium mass in

36 PLEASE SUBMIT QUESTIONS* TO *ANSWERED AT THE END OF THE CALL