Galaxy’s Profit Beats Estimates as New Resorts Woo TouristsBy
Macau operator sees continued shift to recreational gambling
Quarterly profit up 22% on Galaxy Macau expansion, Broadway
Galaxy Entertainment Group Ltd.’s second-quarter earnings rose 22 percent from a year earlier, more than analysts expected, as the opening of new resorts boosted non-gaming revenue and casino market share.
Adjusted earnings before interest, taxes, depreciation and amortization, or adjusted Ebitda, was HK$2.3 billion ($297 million), compared with the HK$2.25 billion median estimate of five analysts surveyed by Bloomberg. Galaxy, Macau’s largest casino operator by market share, reported a 6 percent profit growth in the first quarter.
Macau’s gambling revenue plunged for 26 straight months amid China’s economic slowdown and crackdown on corruption, which led high-end VIP gamblers to avoid the world’s largest casino hub. The revenue decline eased in July compared to the previous month, as operators shifted focus to recreational gamblers and tourists, with more family-friendly facilities at new resorts.
Galaxy Macau’s second phase expansion and Broadway Macau, projects which opened in May 2015, helped Galaxy surpass Sands China Ltd. in the first half to become the city’s largest casino operator with a 23 percent market share, according to a Daiwa Capital Markets report before the results. Its market share is expected to drop later in the year as other operators debut new resorts, according to Daiwa.
Galaxy shares rose as much as 2.3 percent to HK$26.40 in Hong Kong trading Thursday, reversing earlier losses when it fell as much as 2.5 percent. The stock has gained 5.5 percent so far this year through Wednesday, lagging the Bloomberg Intelligence Macau Gaming Index which rose 7.4 percent over the period.
The company’s “key growth catalysts would be the further ramp-up of Galaxy Phase 2” although contributions will likely be limited as it’s been open over a year, Nomura International analysts led by Richard Huang wrote in a note before the results. “Longer term, growth hinges on the roll-out of Galaxy Phases 3 and 4 which are unlikely to come online before 2019.”
Galaxy said it saw a continued shift in Macau’s casino market towards mass market, or recreational, gamblers. Its first half mass-market segment revenue rose 22 percent to HK$10 billion compared to a year earlier, while high-stakes VIP gambling dropped 15 percent to HK$13.2 billion.
Galaxy’s billionaire chairman Lui Che-Woo had said in an interview in March that he planned to incorporate family-friendly theme parks into his future casino projects. The company also said Thursday that it has identified HK$300 million of additional cost cuts which will be delivered in 2016.