JP Morgan says operator got lucky
Analysts at Union Gaming Asia Securities say Hong Kong-based gaming company Galaxy Entertainment Group has “hit its stride at just the right time,” a positive outlook shared by experts “across the board,” according to the Macau Business Daily.
The operator’s third quarter results, released in the last week of October, show Galaxy “outperformed the market across all segments, but most importantly outperformed in the high-margin segments and slots despite the significant addition of new supply during the quarter,” wrote Union Gaming lead analyst Grant Govertsen. Galaxy revenue surpassed estimates by 8 percent for a total of HK$12.9 billion (US$1.66 billion), a 5 percent year-on-year increase and HK$1 billion above forecasts by Union.
Sanford C. Bernstein said Galaxy performed as expected, but said EBITDA was 13 percent its estimate. But analysts at J.P. Morgan attributed the increase to the “luck factor,” the newspaper reported.
Bernstein said it remains “cautious on calling a recovery (especially in VIP) just yet.” Despite strong VIP results, which were up 3 per cent quarter-to-quarter, the figure was down 4 per cent year-on-year and may constitute “a short-term burst. “ The brokerage added that Galaxy could realize “strength in the grind and highly profitable mid-tier segment.
“Galaxy continues to transition (better than we had expected) from VIP to mass,” wrote the Bernstein team.
Union’s Govertsen added that Galaxy is “the only Big 6 operator with the ability to meaningfully increase its supply following the current wave of development.” He was referring to its planned Phases III and IV, which will provide more affordable room supply and more non-gaming in the coming quarters. Govertsen predicts that net revenue for all of 2016 will reach HK$50.7 billion, 3 percent above estimates with a 3.7 per cent year-on-year reduction the following year, down to HK$48.84 billion.
Furthermore, he said, Galaxy will “hold its own against new supply and generally avoid cannibalization” in Macau, thanks to a “generally positive impact on non-premium mass for the market as a whole’ from the opening of the Parisian Macao in September.”
