Galaxy Bets on Macau Broadway Wooing Tourists as Net Falls

Galaxy Entertainment Group Ltd. is banking on two new casino resorts, due to open in May, to draw enough Chinese tourists and help stir a rebound in the city’s hard-hit gambling industry.

“I believe we will gradually see a recovery in the second half of this year, I’m not worried about whether there is any massive structural problem,” deputy chairman Francis Lui said at a briefing in Hong Kong yesterday, after Galaxy reported earnings plunged 25 percent in the fourth quarter. The second phase of Galaxy Macau and the Broadway at Galaxy Macau will be the city’s first new projects in more than three years.

Like the five other Macau operators that reported results before it, Galaxy has been buffeted by China’s anti-corruption campaign that scared off high-stakes gamblers. Gambling revenue in the city fell for the first time last year, and a bigger drop is expected this year amid China’s slowing economy, a ban on smoking in casinos, and stricter rules on visas that also damped business from mass market gamblers.

Galaxy rose 1.7 percent to close at HK$36.10 in Hong Kong trading, underperforming the Bloomberg Intelligence Macau Gaming index which rose 2.6 percent. The stock has declined 17 percent so far this year, against the Hang Seng Index’s 3.3 percent gain.

The company’s “fundamentals remain weak and operating trend will continue to take time to see improvements,” HSBC analysts including Charlene Liu wrote in a note today, lowering the price target for Galaxy to HK$38.50 from HK$39.90, while maintaining a “neutral” recommendation.

Won’t Change Strategy

Galaxy “won’t change its long-term business strategy in the midst of business cycles”, said Lui, son of the Hong Kong-based company’s billionaire chairman founder Lui Che Woo. The company has already hired 2,500 of the 8,000 employees it needs for the new projects, on track to open May 27, according to the younger Lui.

The Broadway at Galaxy Macau resort will recreate New York’s famous theater district with a 3,000-seat venue, showcasing international performances as well as Asian culture, the company said in a statement yesterday.

Galaxy’s adjusted earnings before interest, taxes, depreciation and amortization, or adjusted Ebitda, fell to HK$2.7 billion ($348 million) from a year ago, in line with the HK$2.78 billion median estimate of eight analysts surveyed by Bloomberg News.

Diversify From Casinos

Macau’s economy shrank 17.2 percent in the fourth quarter after casino revenues slumped, as China’s anti-graft campaign led high rollers such as officials and senior executives to avoid the world’s biggest gambling hub. The gambling industry may face another 8 percent drop this year, according to the median estimate of nine analysts surveyed by Bloomberg News showed, after falling 2.6 percent last year.

Galaxy’s projects will be the first among a slew of new projects opening in Macau’s Cotai Strip, including Melco Crown Entertainment Ltd.’s Studio City casino resort,as operators target to draw more mass market tourists as Chinese President Xi Jinping urged the city to diversify away from casinos.

VIP Business

The casino operator submitted its application for gambling table allocations for the new projects earlier this week, Francis Lui said. Its VIP business has also held up better than its competitors due to its relationship with the stronger junket operators, even as mid- to smaller-sized junkets come under pressure, the younger Lui said.

The middle-men bring in high-stakes players and loan them the cash to gamble with.

Galaxy’s VIP business did better than other Macau casinos for a fourth quarter, with revenue from high rollers falling 17 percent compared with the average of 33 percent decline citywide, Tim Craighead, head of Asian research at Bloomberg Intelligence, wrote in a note today.

The amount wagered at Galaxy’s VIP tables fell 23 percent in the fourth quarter, the smallest decline among Macau casino operators, the rest of which saw slumps of 28 to 44 percent, according to data compiled by Bloomberg Intelligence.