Galaxy Entertainment - Key takeaways from results briefing
- 2Q23 adjusted EBITDA up 32% q-o-q to HK$2.5bn, in line with consensus and above our estimate. HK$0.2 special DPS declared
- Mass gaming revenue has recovered to pre-COVID-19 levels by 2Q23, with the current QTD tracking c.120% of the same period in 2019
- Roll-out of Andaz Macau by Sep 2023 will add more hotel rooms for further market share gains. Maintain BUY, lift TP to HK$62.31
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- 2Q23 revenue up 257% y-o-y to HK$8.7bn (or up 23% q-o-q), taking 1H23 revenue to HK$15.7bn, up 141% y-o-y.
- 2Q23 adjusted EBITDA reached HK$2.5bn, versus -HK$384m in 2Q22 (or up 32% q-o-q), better than expectations. In 1H23, adjusted EBITDA increased significantly to HK$4.4bn (1H22: HK$191m).
- GEG’s hotels are fully occupied even after its increase in room inventory. Retail operations also remain solid and F&B stays strong. Specifically, its flagship property, Galaxy Macau (GM), saw 2Q23 mass gaming revenue returning to the pre-COVID-19 level of 2Q19 (including grand mass segment at 63% of 2Q19 as this is tied more closely to visitation numbers). GM’s retail mall rental also exceeded the pre-pandemic level by c.40%, and hotel revenue surpassed c.87% of the 2Q19 level.
- While GM’s 2Q23 retail income was c.10% weaker q-o-q, this was mainly due to a strong 1Q23 as transactions of a couple of premium jewellery products were included.
- Starworld’s GGR rose 30% q-o-q in 2Q23, and EBITDA grew 70% q-o-q, with adjusted EBITDA margin improving from high-teens in 1Q23 to c.25% in 2Q23.
- Sitting on HK$22bn net cash as of June 2023 (including liquid investments), the company declared a special DPS of HK$0.2 (payable on Oct 27).
Cotai Phase 3 in full operations. As non-gaming facilities could help to drive a longer stay for visitors and enhances customer diversity, Galaxy invested in world-class facilities to better ride on sound business recovery across Macau, including Galaxy International Convention Center and Galaxy Arena of Cotai Phase 3 that were inaugurated in Apr 2023. More restaurants were rolled-out during 2Q23, and its new Horizon Premium Club was also opened in July 2023. The company’s successful soft opening of Raffles at Galaxy Macau (450 hotel suites) on 16 Aug 23, and a target to launch Andaz Macau (700 hotel rooms) on 15 Sep 2023 should beef up its premium mass growth prospects.
Outlook stays encouraging. GEG’s continued recovery has been verified by its strong performance during the summer holidays. Group-wide, mass gaming revenue is tracking c.120% of the pre-COVID-19 level quarter-to-date for both win and drop, driven by the stronger premium mass segment, following the soft opening of Raffles of Galaxy Macau and the New Horizon Club. Further market share gains were also seen month-to-date during Aug 2023. Its launch of Andaz Macau next month should further beef up hotel room capacity to see a better momentum. As for its Starworld property, latest GGR was around 80% of the same period in 3Q19, as compared to 67% of the pre-pandemic level in 2Q23, which is a decent improvement.
Careful cost management. GEG continues to focus on managing its overall cost structure. With 18,000 staff by the end of 2Q23, staff costs represented c.80% of opex, equivalent to c.82% of the pre-pandemic level in 2Q19. Total opex for GM went up by 9% q-o-q in 2Q23, and the increase at the group level was c.20% q-o-q along with more hirings, with a run rate at c.80-85% of pre-pandemic level. Upon the opening of Andaz Macau, GEG remains confident that it should continue to achieve some headcount savings, resulting in a lower level of opex ratio versus the pre-COVID-19 times.
Positioning strongly for longer term growth. Management remains highly confident about the future of Macau and will continue to invest into its business. GEG will also launch its first overseas business development office in Tokyo, followed by Bangkok and Seoul to attract more international visitors to Macau. This year, the company has started to fully focus on its development of Cotai Phase 4, which should increase GEG’s total hotel room inventory in Macau to 7,500 rooms & suites. The original plan is to inaugurate Cotai Phase 4 by 2027, yet given the current promising market, GEG will strive to move the timeline forward slightly.
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