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.
WYNN reported 1Q earnings after the close. Total 1Q property EBITDA was $564M vs. consensus of $547M and our $548M estimate. Relative to expectations Macau was mixed while Vegas was better. New CEO Matt Maddox sounded commanding and confident on the call.
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.
Late last night (04/05/18) an article from the NY Post claimed MGM has expressed interest in acquiring WYNN. The article included quotes from unidentified sources, but one of those sources was noted as saying “no official talks had yet taken place.” We previously explored an MGM/WYNN scenario a few months ago in a note here.
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 morning (03/21/18) a registration statement was filed noting Steve Wynn’s intention to sell all or a portion of his shares. Steve is limited to selling a maximum of 1/3 of his stock per quarter without the company’s approval. Yesterday afternoon an amended 13D was filed for Elaine Wynn with updates following the prior settlement, and it was disclosed in the 13D that “Ms. Wynn may engage in discussions with the company’s shareholders, management and board of directors regarding a variety of matters…” Recall Steve owns 12% and Elaine owns 9%.
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