Bad luck in both the VIP and mass-market segments, along with high costs incurred for new hotel openings and sponsorship events, are factors that dragged Galaxy Entertainment Group’s (GEG) 4Q23 performance, according to investment bank Goldman Sachs.
In an investment memo elaborated after hosting Galaxy CFO and IR team this week, analysts state that GEG’s EBITDA is expected to remain steady quarter-to-quarter at HK$2.8 billion ($358 million) to HK$2.9 billion ($371 million) in 4Q23, with a slippage in gross gaming revenue (GGR) market share to 17.1 percent from 18.5 percent in 3Q23.
The memo notes that the additional expenditure comes from the opening of Andaz Hotel in September, and sponsorship events such as the Grand Prix and marathon. ‘We suspect the stock may still be under pressure in the near term in anticipation of softer 4Q23 results to be announced in February.’
The management remains “optimistic” about its business outlook in FY24, highlighting a noticeable recovery in grind mass GGR as reflected by improving Macau visitation data and strong forward hotel room bookings for the Chinese New Year (CNY) holidays. Most of the bookings are already filled by players, with limited inventory left for retail.
GEG has mentioned the addition of a 40-table premium mass area at the Southside of Galaxy Macau in mid-December and scheduled completion of other renovation works on the gaming floor by CNY to drive better table productivity and GGR growth.
Less than expected salary hike
Goldman Sachs mentions that GEG has budgeted a 2 to 3 percent salary increase for FY24, which is less than expected. The salary increase budget aligns with Sands Macau; however, Sands China recently announced a pay raise plan while GEG did not.
Additionally, ‘compared to other casino operators who might have underspent last year, Galaxy has already incurred HK$3 billion ($384 million) to fulfill its non-gaming commitment under the new concession as part of its daily operation.’
The expenditure accounts for about 10 percent of its total 10-year commitment of HK$28.4 billion ($3.6 billion). GEG does not expect a significant increase in such spending in FY24.
Analysts note that over the past month, Macau’s gaming operators’ stocks have bounced back by an average of 15 percent driven by better-than-expected GGR data in December. However, “Galaxy’s share price has lagged behind at least 4 percent due to concerns over its GGR market share loss in November.”
On a positive note, GEG’s underlying business momentum remains ‘healthy’ with a steadily growing number of new loyalty members. The various expansion and renovation works on its gaming floors ‘should better prepare the company to capture gaming demand and regain GGR share’ in the first half of this year.
Currently, GEG is revamping Starworld by closing some non-performing tables and moving them to Galaxy Macau since 3Q23, as well as adding stadium games or ETG on the gaming floor. In FY24E, the company will work on changing the facade of its building and adding non-gaming facilities. Starworld has been open for 18 years since its opening in 2006.
500 out of 700 rooms of Andaz Hotel have been in operation since September, the remaining 200 rooms will also come onstream soon, as the company has already hired and trained its staff.
