Each month we track several indicators, which have historically led Macau GGR growth by several months. The data points for the most recent month show 10 of the 19 y/y indicators are better than the prior month versus 14 of 19 last month. We chart each and we show a summary table in Exhibit 1.
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November Vegas Strip GGR reported this morning showed a -3.1% y/y decline versus our estimate of +4% y/y. Hold hurt results by ~150pp relative to our expectation, so the core result was still softer than we expected. All other data was released early this afternoon, which showed Strip RevPAR up 5.7% y/y versus our estimate of +4% y/y. Oct/Nov GGR is down -6.3% y/y and Oct/Nov RevPAR is down -0.3% y/y, implying that December needs to be a very good month for the quarter to be in line with current MGM/CZR Street expectations of ~+2%-+3% revenue growth. Hold helps the December GGR growth rate by 11pp y/y after unusually poor hold in the year-ago period, but December will also need core strength to achieve current estimates, in our view, and the last week of the year is a key period.
Our coverage has had a great 2019, with the stocks in our group up an average of 42% YTD (S&P 500 up 29%), recovering losses from 2018 when our group was down an average of 26%. The stock market seems to be suggesting that we’re shifting back to early cycle and that the U.S. ISM manufacturing PMI is set to increase off the September low of 47.8. The question is how much is already priced into the stocks and can the rally continue in 2020? In this week’s piece we try to answer this question by looking at when our stocks peaked during prior cycles in relation to peak PMI. We also show where current valuations stand relative to the peak valuations in the last couple years for some context of the recent rally.
Our cruise, gaming, and lodging coverage universe has risen sharply in recent months during this risk-on tape. Within our lodging coverage specifically, current stock prices for our Outperform-rated hotel stocks (MAR, HLT, and H) are now above or near our target prices. So, our two options are to either raise target prices or downgrade the stocks. We choose to raise our target prices via higher multiples. We understand the optics of target multiple raises may not look great, but we think it’s the right decision, and in this week’s piece we discuss with several key points and charts.
This morning (12/18/19) it was reported The People’s Bank of China would raise the daily limit on individual transfers from Macau to China from 50,000 yuan (~$7,100) to 80,000 yuan (~$11,400). Recall President Xi is visiting Macau this week from December 18-20 for the 20th anniversary, where he is also announcing new policy actions, which have been expected to be positive for Macau.
Each month we track several indicators, which have historically led Macau GGR growth by several months. The data points for the most recent month show 14 of the 19 y/y indicators are better than the prior month versus only 6 of 19 last month. We chart each and we show a summary table in Exhibit 2.
November Macau GGR was released Sunday (12/1/19), showing a decline of -8.5% y/y, versus the Consensus Metrix average estimate of -9.2%. Coming into the month we think consensus was expecting a better result, but expectations seemed to soften as the month progressed. Therefore, the final result was marginally better than lower expectations. Macau GGR – and specifically VIP GGR – continues to face pressure from the macro environment, the trade war, and seemingly Hong Kong protests, as well as other factors affecting junkets and the VIP segment. GGR in the first two months of the quarter has come in lower than our initial expectations, so we’re lowering estimates today for our Macau coverage (Exhibit 1).
One pushback we hear from cruise line bears is that the industry generates little free cash flow with excessive capex, and therefore the return of capital to shareholders is poor. In this week’s piece we’ll discuss that pushback with several charts.
In this week’s piece we discuss a few topics, including 1) October regional gaming trends, which have been strong; 2) cheap hotel rates we observed at Encore Boston Harbor, which ties into reports of on-going promotional activity in other areas; 3) some thoughts on recent cruise line price action; and 4) more thoughts on MGM given the likely upcoming reduction to its MGP stake disclosed last week.
At the end of 2016 Japan removed its ban on casino gambling, but the process of implementing policy and selecting winners has taken longer than expected. Initially it was thought operations would begin in 2023, but we think a realistic timeline is now at least a couple years longer. We see Japan as the biggest global expansion opportunity, albeit many years away, and in this note we’ll provide an update with some analysis.
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