Galaxy Surges 11% as Quarterly Profit Increases Sequentially

  • Company aims to achieve $100 million in cost savings
  • Non-gaming revenue almost doubles, rent revenue up fourfold

Galaxy Entertainment Group Ltd. surged the most in more than three months after reporting a 13 percent sequential increase in profit for the third quarter as the opening of new casinos helped boost customer traffic and revenue.

The Hong Kong-based casino operator jumped 11 percent to close at HK$29.10, the biggest gain since July 2. The city’s Hang Seng Index rose 2 percent.

Galaxy reported income of HK$2.1 billion ($271 million) in the third quarter, as measured by adjusted earnings before interest, taxes, depreciation and amortization, the Hong Kong-based company said Thursday. That compares with the HK$2.05 billion median estimate of four analysts surveyed by Bloomberg.

“What’s important is that mass market and slot machines grew notably compared to the second quarter,” said Grant Govertsen, an analyst from Union Gaming Group. “They started growing nicely on a sequential basis which suggest that Galaxy’s expansion is gaining attraction in the mass market. The third quarter is certainly a positive sign.”

China’s anti-graft campaign and a slowing economy have discouraged high-rolling VIP gamblers from playing. While gross gaming revenue fell for 16 straight months in the world’s biggest gambling hub, the pace of declines has been slowing since February. Operators such as Galaxy and Sands China Ltd., are building shops, tourist attractions and other non-gaming features to lure tourists as part of the city’s goal to reduce reliance on hard-core gamblers.

Non-Gaming

The company, which is adding new amenities to its expanded casinos, aims to save HK$800 million by controlling costs, Galaxy said without disclosing details.

While Galaxy’s revenue plunged 29 percent year-on-year, sales rose 5 percent from the June quarter to HK$12.3 billion in the three-month period.

Galaxy Macau recorded non-gaming revenue -- comprising of hotels and food and beverages -- almost doubled to HK$742 million in the third quarter year-on-year, including a quadrupling of the rental revenue for its shopping mall Promenade. Occupancy rate at Galaxy Macau’s five hotels reached 99 percent, it said.

Angela Han Lee from China Merchants Securities Co. expects contribution from rental revenue will be even higher in the coming two quarters. “I think it’s just the start of the contribution of the non-gaming rental revenue,” which will help improve margin, she said.

Galaxy Entertainment, controlled by billionaire Lui Che Woo, opened the phase two expansion of Galaxy Macau and the revamped Broadway Macau in May. The $3.1 billion projects marked the first in Macau in three years.

Golden week

The Galaxy Macau casino’s adjusted EBITDA was down 30 percent year on year and rose 19 percent from the second quarter. Revenue from VIPs fell 38 percent from a year earlier and 4 percent from the previous quarter. Mass revenue fell 2 percent from a year earlier and rose 21 percent sequentially. Broadway Macau recorded revenue of HK$189 million for its first full quarter of operation.

“Spending behavior in Macau remains cautious, but we are very confident in the longer term outlook and prospects for Macau” and the company as it’s encouraged by performance during China’s weeklong holiday this month and potential stimulus from the government, it said in the statement.

Turning Bullish

Stock analysts are turning bullish on casino operators, a sign that the worst is over for investors as share prices rebound from the lowest in three years.

The stocks are also bouncing back after investors speculated Beijing would introduce policies to support Macau’s economy. Stronger-than-expected gaming revenue in the first 11 days of this month, including China’s weeklong National Day holidays, has boosted share prices of the gambling operators this week.

Galaxy’s mass market share climbed to 18.1 percent in the third quarter from 16.5 percent in the previous three-month period, while VIP market share jumped to 26.1 percent from 23.5 percent, according to Deutsche Bank AG.

The Oct. 27 opening of Melco Crown Entertainment Ltd.’s new Studio City casino resort, which features Asia’s tallest Ferris wheel and a Batman ride, could further boost customer traffic. 

“We believe that the unique offerings will be sufficient to create the story and ‘wow factor’ to attract visitation, benefiting the mass segment,” analysts led by Kenneth Fong at Credit Suisse Group AG wrote in a report.

Rivals Wynn Macau Ltd. and Sands China are also scheduled to open new projects in 2016.

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