Galaxy Entertainment Group: 3Q24 Performance and Future Prospects
Broker Name: UOB Kay Hian
Date: Friday, 08 November 2024
Overview of Galaxy Entertainment Group
Galaxy Entertainment Group, a prominent player in the global entertainment industry, operates casinos, hotels, and other entertainment facilities in Macau. Additionally, the company is involved in manufacturing, selling, and distributing construction materials. The company is classified under the Consumer Discretionary sector and trades under the Bloomberg ticker “27 HK.”
Stock Performance
As of the latest assessment, Galaxy’s shares are priced at HK\$36.35 with a target price of HK\$46.00, indicating a potential upside of 26.5%. The company’s market cap stands at HK\$158,979.9 million (US\$20,456.0 million), and it has an average daily turnover of US\$85.7 million over the past three months. Major shareholders include City Lion Profits Crop (22.25%), Lui Che Woo (9.14%), and Capital Group Cos Inc/The (4.78%).
3Q24 Performance Analysis
Galaxy’s normalized EBITDA for 3Q24 saw a 3% quarter-on-quarter (qoq) decline, attributed to a higher reinvestment rate and increased promotion and marketing expenses related to Macau. Despite these one-off impacts, Galaxy maintained a Gross Gaming Revenue (GGR) market share of over 20% in October 2024. The company’s retail performance also showed improvements, particularly in the luxury segment.
3Q24 Financial Highlights
- Net Revenue: HK\$10,668 million, a 2.3% qoq decrease.
- Adjusted EBITDA: HK\$2,940 million, down 7.4% qoq.
- EBITDA Margin: 27.6%, narrowing by 1.5% qoq.
- Gross Gaming Revenue: HK\$10,152 million, down 1.8% qoq.
- VIP Revenue: HK\$1,100 million, declining by 20.9% qoq.
- Mass Revenue: HK\$8,386 million, up 1.1% qoq.
- Slot Revenue: HK\$666 million, a 1.2% qoq increase.
Factors Influencing 3Q24 Results
The decline in adjusted EBITDA was primarily due to:
- Higher commissions paid to VIP customers due to a lower win rate.
- Lower-than-expected volume from premium customers in September 2024, leading to a higher reinvestment rate.
- Increased promotion and marketing expenses related to Macau.
Market Share and Gaming Revenue
Galaxy’s GGR market share slightly decreased by 0.1 ppt qoq to 18.8% in 3Q24, with GGR recovering to 71% of 2019’s levels. The VIP, mass, and slot GGR recorded quarterly changes of -21%, +1%, and +1%, respectively.
Financial Forecasts and Valuation
Galaxy’s financial projections for the coming years are optimistic:
- 2024F Net Revenue: HK\$44,289 million
- 2025F Net Revenue: HK\$49,161 million
- 2026F Net Revenue: HK\$54,613 million
- 2024F EBITDA: HK\$12,995 million
- 2025F EBITDA: HK\$15,060 million
- 2026F EBITDA: HK\$16,999 million
- 2024F Net Profit: HK\$9,508 million
- 2025F Net Profit: HK\$12,002 million
- 2026F Net Profit: HK\$13,839 million
Valuation and Target Price
UOB Kay Hian maintains a BUY recommendation for Galaxy Entertainment Group with a target price of HK\$46.00. This target price is based on a 12.0x target EV/EBITDA ratio, implying 21.1x/16.8x 2024/25F PE. Currently, the stock trades at 16.7x/13.2x 2024/25F PE and 10.9x/9.4x 2024/25F EV/EBITDA.
Casino Performance Breakdown
Galaxy Macau
- 3Q24 Net Revenue: HK\$8,406 million, down 2.8% qoq.
- Property EBITDA: HK\$2,557 million, down 8.1% qoq.
- VIP GGR: HK\$1,027 million, down 20.2% qoq.
- Mass GGR: HK\$7,123 million, up 1.1% qoq.
- Slot GGR: HK\$490 million, down 6.5% qoq.
Starworld Macau
- 3Q24 Net Revenue: HK\$1,337 million, up 1.1% qoq.
- Property EBITDA: HK\$396 million, up 1.5% qoq.
- Mass GGR: HK\$1,226 million, up 1.6% qoq.
- Slot GGR: HK\$155 million, up 37.2% qoq.
Broadway Macau
- 3Q24 Net Revenue: HK\$62 million, up 14.8% qoq.
- Property EBITDA: HK\$11 million, up 37.5% qoq.
City Club
- 3Q24 Net Revenue: HK\$58 million, up 1.8% qoq.
- Property EBITDA: HK\$6 million, up 20% qoq.
Stock Impact and Management Insights
Galaxy’s management remains optimistic about the company’s future performance. Despite the higher reinvestment rate in 3Q24, management believes this was a one-off impact due to the delayed visits of premium customers. The company’s balance sheet remains healthy and liquid, with HK\$28.6 billion in cash and liquid investments as of end-Sep 2024.
Golden Week Performance
During the Golden Week, visitations to Galaxy Macau nearly doubled year-on-year, and the mass drop increased by over 50% year-on-year, outperforming its peers. This strong performance contributed to Galaxy’s GGR market share exceeding 20% in October 2024.
Conclusion
Galaxy Entertainment Group’s 3Q24 performance reflects a temporary setback, primarily due to higher reinvestment rates and increased marketing expenses. However, with a strong balance sheet and positive outlook for the future, the company remains a solid investment choice. UOB Kay Hian’s target price of HK\$46.00 indicates significant potential upside, making Galaxy an attractive buy for investors looking to capitalize on the recovery and growth of the entertainment industry in Macau.
Stay tuned for more updates and insights on Galaxy Entertainment Group as the company continues to navigate the dynamic gaming and entertainment landscape.
