Galaxy reaches for the mass stars

Galaxy reaches for the mass stars

Wednesday, October 26, 2016
Profits up as Macau recovers poise

Hopes for a long-term recovery in the Macau market were given a boost overnight after Galaxy Entertainment reported a 28% increase in net profit in the third quarter while total revenues also rose 5%.

The results were ahead of analyst expectations and came as something of a surprise, despite the tentative signs of a reversal of fortunes in the Chinese gambling enclave.

Union Gaming’s Grant Govertsen noted that Galaxy outperformed across all segments but importantly in the high-margin areas of mass-market growth and slots in particular. “The healthiest part of the market continues to be non- premium mass, which is why we favour names like Galaxy and Sands China given that these companies are much better positioned to capture an outsized share of this market segment for the foreseeable future,” he said in a note to clients.

He added that he expected Galaxy to “hit its stride” as it moves forward with its plans to extend its mass-marketing programmes and its amenities, including the construction of additional lower-end room supply and other non-gaming facilities.

Galaxy newest property, the Galaxy Macau, saw third-quarter revenues rise 8% year-on-year to US$9.4bn (US$1.21bn) compared to the 5% overall rise to HK$12.9bn (US$1.66bn). Total adjusted EBITDA was up to HK$2.7bn ($348m) across the group, and up 31% year-on-year at the Galaxy Macau to HK$2.2bn.

Galaxy Entertainment chairman Lui Che Woo said the company was best positioned to benefit from the market transition currently underway towards a more mass-market proposition, but he cautioned that it was too early to call the bottom of the market. “The recently reported growth in monthly revenue in August and September followed by a strong Golden Week in October are encouraging signs, but we would like some more time before calling it a definitive trend,” he said.

In the third quarter the overall market saw gross gaming revenue (GGR) increase by 1% year-on-year to HK$53.4 billion.

Analysts at Morgan Stanley noted that mass-revenue growth was particularly strong, up 10% quarter-on-quarter and 17% year-on-year which was ahead of the market growth for those same period of 5% and 6% respectively. However, the analysts were concerned that Galaxy’s VIP growth rate was behind the market, at 3% compared with the market-wide growth of 8%.

Govertsen at Union said he was raising his forecasts for Galaxy Entertainment for next year. “We had previously expected Galaxy to experience a modest EBITDA decline in 2017 and are now modelling flat EBITDA in 2017 on an even higher 2016 base,” he said. “All-in our 2017 EBITDA estimate is up 9% relative to our last estimate. Our 2018 estimate forecasts 8% growth.”

Totally Gaming says: Galaxy Entertainment will be satisfied with these results, showing that its strategy of aiming at a more mass-market audience with its new property on the Cotai Strip is paying dividends. These results add to the mood music that suggests, after two or more years of doom and gloom, that the clouds are lifting on Macau and that a more profitable, and crucially more acceptable to the Chinese-authorities, gaming market lies ahead.

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