Galaxy Earnings Miss Estimates, Won’t Pay Dividend

Galaxy Entertainment Group Ltd. posted annual profit that missed analyst estimates and said it won’t pay a dividend as it boosts spending on casino development. The shares fell.

The Hong Kong-listed casino operator’s net income more than tripled to HK$3 billion ($387 million) in 2011, according a statement to the local stock exchange today, missing the HK$3.1 billion average of 10 analyst estimates compiled by Bloomberg News. The board doesn’t recommend the payment of a final dividend for the year ended December, it said.

Casino companies including Sands China Ltd., MGM China Holdings Ltd. and Melco Crown Entertainment Ltd. have reported income gains fueled by rising tourism to Macau, the world’s biggest gambling hub and the only place in China where gambling is legal. Sands in January said it will pay its first dividend because it has enough cash to fund expansion plans.

Net income was “a little disappointing” as the company wrote down the value of convertible bonds, said Edwin Fan, an analyst at BOC International. “The market was also let down by no dividend payout,” he said.

Goldman Sachs in January named Galaxy as among the casino operators most likely to raise or begin paying dividends. Galaxy will invest funds in projects instead of paying out cash to shareholders, Deputy Chairman Francis Lui said in August.

“We are a growth company and we have the largest approved land bank in Cotai so we think it’s in our shareholders best interest to reinvest the capital,” Chief Financial Officer Robert Drake said in an interview today.

Permira Investment

Gaming revenue in the first quarter is set to meet or exceed sales in the fourth quarter and will grow in the “high teens” this year, he estimated. He didn’t provide a timeframe for when the company would start the second phase of development of a Cotai project.

Revenue at the company, which opened the Galaxy Macau resort at Cotai in May, more than doubled to HK$41.2 billion in 2011.

Galaxy fell as much as 5.2 percent before closing down 0.84 percent at HK$18.86. The stock has gained 32 percent this year, compared with 16 percent for the benchmark Hang Seng Index.

Private equity firm Permira Advisers LLP is a long-term investor of Galaxy and has no plan to reduce its investment in the company in the short term, Deputy Chairman Francis Lui said at a press conference in Hong Kong today. Permira sold some Galaxy shares at a discount last year.

Rising Competition

Competition has heated up in Macau as new casinos are opened. Gambling revenue in the former Portuguese colony last year climbed 42 percent to 268 billion patacas ($34 billion).

Galaxy’s new resort opened in May with about 450 gaming tables, 1,100 electronic gaming machines and 1,400 hotel rooms, the company estimated when announcing first-half results in August. That helped almost triple its profit in the third quarter ended September. Las Vegas Sands, through Hong Kong-listed unit Sands China, is adding to its existing properties, the Venetian, Four Seasons and Sands. The first phase of its new Sands Cotai Central resort is set to open next month.

Deutsche Bank this week raised its estimate for 2012 casino revenue growth in Macau to 25 percent on spending by wealthy Chinese tourists. Revenue at the world’s largest gambling hub may rise as spending by VIP or high-stakes gamblers who can bet as much as $250,000 a hand picks up, Deutsche Bank analyst Karen Tang said.

Sands in January said it would pay an interim dividend of 58 Hong Kong cents per share. SJM Holdings Ltd, with casinos including Grand Lisboa and Ponte 16, will pay a final dividend of 43 Hong Kong cents a share and a special dividend of 22 cents, compared with a final dividend of 30 cents paid in 2010, the casino operator said last month.

(Corrects year Deutsche Bank projection in penultimate paragraph of story dated March 15)
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