GGRAsia – Galaxy Ent 2Q EBITDA flat, revenue down on VIP woes

Galaxy Ent 2Q EBITDA flat, revenue down on VIP woes

Aug 13, 2019 Newsdesk Latest News, Macau, Top of the deck

Macau casino operator Galaxy Entertainment Group Ltd says its second-quarter net revenue was down 5.4 percent year-on-year, to HKD13.17 billion (US$1.68 billion), with a “solid” performance in the mass-market segment offset by a “challenging” VIP gaming business.

Adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) for the period were flat in year-on-year terms, at HKD4.33 billion, but 8.8 percent higher from the preceding quarter, said the company in a Tuesday filing to the Hong Kong Stock Exchange.

Galaxy Entertainment however said it “played lucky” in the three months to June 30, which increased adjusted EBITDA by approximately HKD349 million. Normalised second-quarter adjusted EBITDA would have been about HKD4.0 billion, down around 11 percent year-on-year, it added.

The Hong Kong-listed firm reports statutory results on a half-yearly basis, but issues quarterly selected highlights.

The casino operator said net revenue for the first half of 2019 stood at HKD26.22 billion, down 6.6 percent from the prior-year period. The company reported first-half adjusted EBITDA of HKD8.32 billion, 3.8 percent less than a year earlier.

Galaxy Entertainment reported net profit attributable to shareholders of HKD6.68 billion in the first six months of 2019, down 7.3 percent from the comparable period in 2018.

The company said on Tuesday it would issue a special dividend of HKD0.46 per share, to be paid on or about October 25. Galaxy Entertainment had declared a special dividend of HKD0.50 per share in August last year. The group paid a previously announced special dividend of HKD0.45 per share on April 26, 2019

Lui Che Woo, the firm’s chairman, said in a press release issued shortly after the results were posted to the stock exchange, that the dividends announced by Galaxy Entertainment demonstrated its management’s “confidence in the longer-term outlook for Macau and for the company”.

“The overall market in Macau remains relatively stable despite a decrease in VIP volumes due to increasing regional competition, ongoing trade tensions and a slowing Chinese economy,” said Mr Lui. “We continue to reallocate our resources to the highest and best use and focus on growing the higher margin mass business.”

Brokerage Sanford C. Bernstein Ltd said in a note that Galaxy Entertainment’s second quarter results “beat our estimates and consensus”. It added: “All properties experienced positive hold impact, principally at Galaxy Macau.”

Gaming revenue decline

Galaxy Entertainment’s aggregate net gaming revenue in the three months to June 30 was HKD11.14 billion, down 6.3 percent year-on-year.

Aggregate mass table gross gaming revenue (GGR) reached nearly HKD7.27 billion, up 6.3 percent from the prior-year period. Total second-quarter VIP GGR was approximately HKD7.33 billion, down 24.8 percent year-on-year, while electronic gaming revenue for the period was HKD607 million, 6.1 percent higher from a year ago.

Official data from Macau’s gaming regulator showed that market-wide VIP GGR fell 15.6 percent year-on-year in the second quarter, while the mass-market segment reported a 18.6 percent growth for the period.

“We view Galaxy Entertainment’s mass performance as respectable amidst growing competitive pressure from new(er) casinos on the Cotai East (such as Morpheus, MGM Cotai), better
than most other Cotai casinos this quarter,” brokerage JP Morgan Securities (Asia Pacific) Ltd wrote in a note commenting the casino operator’s second quarter results.

For the six months to June 30, group-wide VIP revenue at Galaxy Entertainment declined by 24.8 percent year-on-year, to HKD14.75 billion, while revenue from the mass-market segment increased by 7.8 percent to HKD14.61 billion.

Galaxy Entertainment said that Macau experienced a number of events in the first half of 2019 that impacted the city’s gaming market, “most notably in the VIP segment”. The company said these included a ban from January on tableside smoking in VIP rooms, competition from other casinos in the Asia-Pacific region, and a slowing global economy.

Galaxy Entertainment’s flagship Cotai property Galaxy Macau (pictured) reported second-quarter net revenue of approximately HKD9.53 billion, compared to nearly HKD9.95 billion in the prior-year period. The Cotai property is the primary contributor to Galaxy Entertainment’s revenue and earnings.

Galaxy Macau generated adjusted EBITDA of approximately HKD3.24 billion, up 0.5 percent from the prior-year period.

StarWorld Macau, on Macau peninsula, saw its adjusted EBITDA for the period decline by 4.5 percent year-on-year to HKD943 million. The smaller Cotai property Broadway Macau next door to Galaxy Macau, saw such EBITDA reach HKD6 million versus HKD2 million in second-quarter 2018.

Company chairman Mr Lui said in the press release that the company “continued to make good progress” with the previously-announced HKD1.5-billion revamp of Galaxy Macau and the StarWorld Hotel on Macau peninsula. The company said the revamp had caused some “short term disruption” at the two properties.

Galaxy Entertainment said its balance sheet remained “solid” with total cash and liquid investments of HKD50.4 billion and net cash of HKD43.9 billion. Mr Lui said such financial position allowed the group to return capital to shareholders, fund its “development pipeline and … pursue international expansion ambitions”.

The company said it was “actively pursuing” the development of a casino resort licence in Japan. “We view Japan as a great long-term growth opportunity that will complement our Macau operations and our other international expansion ambitions,” said Galaxy Entertainment in Tuesday’s filing.

Galaxy Entertainment has confirmed it hopes to collaborate with Monaco casino firm Société des Bains de Mer et du Cercle des Étrangers à Monaco, and Japanese partners, to bid for a Japan licence.

(Updated at 3:50pm, August 13)