Given Galaxy Entertainment Group’s strong financial position, Jefferies expects the operator to increase its dividend payout ratio for the first half of 2024.
In a FY23 earnings preview, the investment bank notes that Galaxy was the only operator to pay a dividend during 1H23 and expects the same for 2H23 and 2024.
‘Historically, the company’s dividend payout policy is 30 percent, but we think the payout ratio could be gradually increased given its strong financial position.’
Jefferies indicates that, from the remaining HK$23 billion ($2.9 billion) Phase 3 and 4 CAPEX, the company already had HK$23 billion ($2.9 billion) cash at the end of 3Q23. A group analyst believes that Galaxy’s payout ratio will remain unchanged during 2H23 results (slated for February 28th) but could be raised during 1H24 results.
Commenting on Galaxy’s performance, analyst Andrew Lee notes that 2023 was a transitional year given the hiring process and opening of Phase 3, which led to a slight loss of 2 percent in market share, bringing it to 20 percent. However, management noted that 2024 will see the full impact of Phase 3, which is expected to lead to an increase in market share.
‘Chinese remain the key source of visitors with a shift to focus on lifestyle. The combination of low international airlift and slow passport renewals is leading to Macau remaining one of the preferred overseas destinations.’
Currently, the VIP segment stands at nearly 20 percent of gross gaming revenue (GGR), but junket VIP accounts for less than 2 percent for Galaxy with only one junket operator. ‘Margins for junket VIP are ~10 percent but 20 percent for direct VIP. Premium mass remains the key segment with a HK$20,000-100,000 ADT (average daily turnover) sweet spot.’
Andrew Lee also mentions that management of GEG estimates OPEX is likely to return to pre-pandemic levels due to rehiring staff and wage inflation. This represents 90 percent of $3.4 million per day pre-pandemic in 3Q23.
Total headcount increased to 21,000 after the group hired 6,000 staff in 2023, still below the 22,000 in 2019. However, wages are higher, and staff costs account for 80 percent of OPEX, with the base salary raised 2.5 percent this year.
Property development
Jefferies points out that Phase 3 is fully open with all 700 rooms at Andaz hotel opened before Chinese New Year.
Its Phase 4, under construction with 1,600 suites (via 5 new hotel towers) and a total of 600,000 square meters of development, is slated to open in 2027. Phase 5 will be the redevelopment of Broadway, which is likely to add more room capacity. The group is currently focused on completing Phase 4 before Phase 5.
Other potential future developments include: land in Cotai between Galaxy and The Venetian bus station, and Hengqin island. In addition, ‘management reiterated their interest in a Thai integrated resort but timing is unknown.’
China headwinds
Management is relatively optimistic, citing that China’s macro concerns have been the same headwinds in the past 12 months, but GGR continues to rebound.
Furthermore, Jefferies notes that holidays remain stronger than expected and there are higher-rated players during this Chinese New Year compared to 2019.
