GGRAsia – Possible smoking policy easing fires up Galaxy Ent

Possible smoking policy easing fires up Galaxy Ent

Aug 19, 2015 Newsdesk Latest News, Macau, Top of the deck

The chairman and founder of Macau casino operator Galaxy Entertainment Group Ltd, Lui Che Woo, said on Wednesday following the firm’s first half results for 2015 that he had “continued faith in the long term prospects for Macau”.

Mr Lui senior cited as “positive signs” what he described as the Macau government’s easing of conditions on transit visas issued to some mainland Chinese visitors to Macau; and Macau government willingness to listen to public and industry opinion regarding smoking lounges in the city’s casinos.

Notwithstanding Galaxy Entertainment’s references to policy support from the Macau government, official data show that Macau monthly casino gross gaming revenue (GGR) fell for 14 consecutive months up to July, judged year-on-year. Analysts suggested that up to last weekend and based on unofficial industry returns, Macau’s numbers in August were on track for the second-worst monthly GGR tally since 2010.

Earlier on Wednesday, Galaxy Entertainment had reported first half net profit down 66 percent year-on-year at HKD2.0 billion (US$258 million), on revenue down 34 percent from the prior-year period at HKD25.4 billion.

Noting that Galaxy Entertainment’s recently opened HKD19.6-billion Galaxy Macau Phase 2 and the HKD5-billion Broadway at Galaxy Macau had only been operating for 35 days in the reporting period to June 30, Mr Lui senior added: “We will continue to ramp up our performance even though market conditions continued to be challenging in the first half of the year.”

A special dividend declared in May and the special dividend of HKD0.14 announced on Wednesday and payable in October was evidence of the firm’s “continued faith in the long term prospects for Macau and our determination to return capital to shareholders,” said the chairman.

Mr Lui senior noted the firm had so far invested HKD43 billion on Cotai, and had a further pipeline of investments including expansion on Cotai and non-gaming facilities on a 2.7-square-kilometre land plot on neighbouring Hengqin Island, a part of mainland China.

Smoking issue

GGRAsia asked Francis Lui Yiu Tung, vice chairman of Galaxy Entertainment, why the Macau government was now talking about flexibility on the smoking issue. Investment analysts have said banning completely smoking in Macau casinos could shave 10 to 15 percent off VIP revenue and 10 percent from mass-market play.

Mr Francis Lui told us on the sidelines of Wednesday’s event: “I have always been thinking that the government has been pragmatic in their approach. Of course I think the longer-range goal is to have non-smoking [casino premises]. I think the pragmatic approach at this point in time is that we just have to hold hands and make sure there is no further disruption to the market so that the gaming revenue doesn’t go down again.”

He added: “As long we are mindful of the health of our employees and we are not hurting their health, at the same time we are able to give our customers a choice, that’s a win-win. So I am supporting it [retaining smoking lounges] and I hope the government will be open minded to the suggestion that we are going to propose.”

He didn’t elaborate on what the proposal would be from the operators.

Asked about the possibility of a double set of automatic doors – with a staggered opening sequence – for smoking lounges as an additional safeguard to keep second-hand smoke off the casino floors, he simply said: “Those sorts of details are for our engineers”

The Galaxy Entertainment management was additionally asked during the press event about the impacts on the Macau gambling market of China’s recent devaluation of the mainland’s currency, the renminbi, also known as the RMB.

Robert Drake, the firm’s chief financial officer said: “As far as the RMB is concerned, of course it’s a very hot topic these days, and anyone who is exposed to RMB business is affected by that. But in the short term, we are still assessing the overall impact on the market and what it means for Macau and everywhere else for that matter…. But in the long term…if it’s a good thing for the [China] economy it’s a good thing for China and a good thing for Macau and for Galaxy.”

Mr Drake also noted however that the firm was undergoing what he called an “efficiency review” that had coincided with the launch of the two new Cotai venues on May 27.

“We are aligning our cost structures with our revenue streams,” he told the press conference called to discuss the first half results. “An example is we have implemented a salary freeze for all senior executives.” He added there were more cost controls to come.

Mr Drake noted: “There are gradual signs of stabilisation in the market. But having said that, it is probably a bit too early to call the bottom of the market but we are certainly hopeful.”

The CFO said Galaxy Macau Phase 2 and Broadway Macau had seen an increase in daily visitors in the period following the May 27 opening and were now receiving a combined 60,000 visitors per day.

Hotel occupancy across the six hotels at the whole Galaxy Macau site on Cotai averaged 97 percent and 99 percent in July, he added.

He described the firm’s first half results as “respectable considering ongoing market conditions”.

Doubling down

During the press event, Mr Francis Lui was asked if he was worried about spending even more money – on Galaxy Macau Phases 3 and 4 – in the current contracted gaming market,

Mr Francis Lui said: “We are also very concerned about what to do and how we should do it.”

But the executive said he remained optimistic about Macau’s prospects with a next-door mainland China economy containing 1.4 billion people.

He did concede that a “longer payback period is needed” on resorts if casino operators focus on developing their non-gaming business.

Asked about reports that more Macau junket rooms were likely to close, Mr Francis Lui stated that market wide there were stories of “many VIP lounges that are not operating very well”.

But he said that with more than 300 intermediaries that work in Macau with the casinos and junket operators to bring in VIP players “there will be a small number of VIP lounge operators that are not able to succeed in business, and this is expected and inevitable.

“For the agents and the VIPs that have solid resources, they are carrying on with business.”

The “future potential” in Macau was the premium mass market, he stated.

“The middle class in China is the potential premium mass customer,” said Mr Francis Lui.