Last week the PBOC reported total social financing of 760.8B yuan for the month of May versus the 1,300B yuan consensus estimate. Total social financing can be extremely volatile month to month, but when smoothing the data over the last twelve months the overall trend is still slowing, and the data is now contracting on a y/y basis. We care because credit has been a key driver of GDP growth in China, and this has also been a leading indicator for Macau GGR. LTM growth from total social financing has led Macau GGR growth by five months at a +0.61 correlation over the last decade (see below). In fairness, some other forward looking Chinese data points tell a better story for Macau GGR, and Macau GGR growth has remained surprisingly strong as TSF has decelerated in the last year, but this is still not a positive development.
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Shares of RCL are down 23% since the peak back in January, and its forward P/E multiple has contracted by 28% from 15.2x to 10.9x mostly due to rising oil/USD and concerns about future supply growth. RCL has undeservedly been hit the hardest in the group, in our view, which we attribute to more exposure to the Caribbean. We think RCL’s valuation has created a very attractive risk/reward and we have three charts to illustrate our view.
We looked at stock ownership for CEOs in our coverage and compared the results to other CEOs in the S&P 500. We also looked at prior periods of open market purchases by C-Level executives, and both charts are shown below. We believe stock ownership is the single best form of shareholder alignment. When executives take this a step further and use their own capital to buy stock in the open market – rather than just accumulating stock options – it’s even more bullish, as executives at that point are also confident enough in the direction of the business based on forward data that only they can see.
Lodging fundamentals have been strong and the stocks have been outperformers YTD despite broad macro concerns that the cycle feels toppy and despite weakness from other cyclical industries like cruise lines, for example. We think there are four key reasons why lodging stocks continue to work: 1) supply growth is likely peaking this year and the pipeline has stopped increasing; 2) demand trends have been modestly improving led by corporate travel; 3) inflation and rising oil prices are generally positive for RevPAR; and 4) lodging REIT M&A has sparked incremental interest.
Macau GGR continues to surprise to the upside. April Macau GGR was released last week, which showed growth of 27.6% y/y. This translates to 858M MOP/day, compared to 850M MOP/day in the first quarter, despite no benefits from Chinese New Year.
LVS reported 1Q earnings after the close. Total property EBITDA in 1Q was $1.50B with hold-adjusted property EBITDA at $1.37B, compared to our $1.30B estimate and consensus of $1.29B. It was a good report and the call was positive, but none of that should be too surprising.
This is a 26 page note we write each quarter where we update our thesis for each industry and each company into earnings and for the remainder of the year. We hope you will join us at our quarterly investor lunch we’re hosting in NYC on Friday.
March Macau GGR was released on Sunday (04/01/18), which showed growth of 22.2% y/y, versus our ~15% implied estimate, and consensus of we think about 17%. GGR grew 20.5% y/y for the entire 1Q, which translates to 850M MOP/day, compared to 787M MOP/day last quarter. We believe a key reason for the sequential strength is the stronger CNY/HKD, which is now at a 2.5 year high. Other important Chinese indicators have been mixed.
This week we wrote a note explaining why we think cruise stocks will still work into accelerating supply growth in 2019/2020. One of our main points is that the macro environment matters more than supply growth. We ran regressions using cruise line net revenue yields as our dependent variable and macro indicators and supply growth as our independent variables. The results suggest 43% of the variability of industry net yields can be explained by changes in the macro environment, on average (i.e. R2). Meanwhile, only 12% of the variability of industry net yields can be explained by the y/y change in gross supply growth.
Overnight DICJ reported GGR grew 36.4% y/y in January versus our low-end estimate of ~21%. January benefited from an easy y/y comp given the timing around Chinese New Year, but we were still surprised by the overall strength. Win rates may have also been higher than normal in the month, and a stronger RMB against the HKD may also be contributing through more purchasing power.
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