Macau 2020 GGR
Galaxy Macau

Despite the near-term sluggish outlook, the uncertainty of COVID-19 outbreaks throughout 2022 with travel bans or restrictions, visa restrictions, and quarantine requirements impacting performance, brokerages are bullish over Galaxy Entertainment and have revised the target price of the company shares.

J.P. Morgan and Bernstein have revised the target price of Galaxy Entertainment shares to HK$56 per share and HK$57.5 per share from the last trading price of HK$46 per share as the brokerage publish their quick take reports on the company’s 2Q22 results,

The prime logic behind the revision of $10-11.5 per share in both brokerage reports is reflected in that the company has a robust balance sheet and a significant focus on properties in Macau and Cotai.

Developments

“Construction of Galaxy Macau Phase III was effectively completed, although its opening will be aligned with the prevailing market conditions,” is what J.P. Morgan report weighs the stock to remain positive in the future.

Whereas the Bernstein report mentions, “Phase 3 construction is effectively completed, but opening continues to wait for improved market conditions and will likely be delayed into 2023. Phase 4 development remains on track with good progress made during the pandemic.”

Long-term, management is confident that Phase 3 and Phase 4 will be favorably positioned as Cotai’s “next generation of integrated resorts”, and cited its advantageous MICE and entertainment facilities would help Galaxy attract more foreign customers, as the goal advocated by the Macau government for the new concession, the Bernstein report read.

Solid Books

On the financial of the company, based on the 2Q22 numbers, J.P. Morgan report narrates, “Balance sheet remained robust with HK20.3B net cash at June, vs. HK$24.5B at March.”

Whereas Bernstein’s report says, “Liquidity remains very strong and Galaxy has the best balance sheet in Macau.”

Galaxy maintains a strong balance sheet with net cash and liquid securities of HK$20.3 billion and only $300 million core debt zero debt with Macau operation, the Bernstein report read.

Though down on QoQ basis, in 2Q22, Galaxy retained a strong liquidity position with cash or liquid investments at HK$29 billion and net cash of HK$20.3bn, the brokerage report read.

The decline in cash balance was mainly contributed by HK$1.5 billion Capex in Cotai as well dividend payment of HK$1.3 billion and HK$1 billion on fair value loss on investment, the brokerage report narrated.

The company has strong focused on improving the cost structure and the Cost structure continued to improve and most cost savings have already been achieved, the Bernstein report further read.

J.P. Morgan report further argues that, “Brokerage believes Galaxy is still among the relatively safer medium-term plays in times of uncertainty, hence keeping it is rated as Overweight.” 

The brokerage’s report also emphasizes that “the long-term share gain story remains intact with its Phase III opening and Phase IV opening in 2-3 years. Considering all this, its valuation premium seems a reasonable price to pay.”