Macau gaming operator Galaxy Entertainment Group (GEG) is well-positioned to ‘invest heavily’ in growth opportunities in Macau and potentially other jurisdictions, such as Thailand, while still returning capital to shareholders through dividends, says CBRE.
Previously, a report from brokerage CLSA mentioned that four of Macau’s six casino concessionaires have shown interest in investing in Thailand, with GEG being one of them. The brokerage added that GEG, like the other five Macau operators that formerly explored the Japan market, is ‘still seeking overseas expansion, backed by a cash-rich balance sheet’.
CBRE analysts John DeCree and Max Mars note in their latest investment memo that Galaxy Macau’s recovery is now ‘catching up’ to the broader market, and the company’s forward commentary suggests that this trend is continuing into the third quarter.
‘The company also has a meaningful development pipeline to capture future long-term growth from the eventual re-acceleration of visitation to Macau. While macroeconomic concerns may overshadow this in the near term, the company is thinking long-term and is positioned to weather any storm until then,’ the memo states.
Commenting on the company’s 2Q24 results, CBRE notes that GEG reported adjusted EBITDA of HK$3.2 billion for 2Q24, marking a 12 percent increase from the previous quarter and reaching 73 percent of the level seen in 2Q19. Despite a negative impact of approximately HK$20 million due to unfavorable hold, Adjusted EBITDA would have risen by 15 percent quarter-on-quarter and recovered to 74 percent of 2Q19 if adjusted for this factor.
The company’s performance was driven by improved operational efficiency and returns from investments in Galaxy Macau’s gaming area and Galaxy Arena, which contributed to higher visitation. The company also began deploying smart tables in July, with management noting market share gains relative to 2Q24.
Cost management and operational efficiency
Galaxy Entertainment demonstrated an improvement in managing operational expenses, with total operating expenses declining by 2 percent quarter-on-quarter despite an increase in gross gaming revenue (GGR) and overall revenue. While there was a rise in promotional activities during the quarter, these have since stabilized, resulting in a 40 basis points expansion in Property EBITDA margin, including an 80 basis points improvement at Galaxy Macau.
Labor expenses, which account for 75 percent of operating expenses, remained stable, with employee headcount returning to 2019 levels. If the company can maintain this stability as it completes various development projects, further EBITDA growth is expected from improved revenue flowthrough.
Encouraging outlook for 3Q
Looking ahead to 3Q24, Galaxy Entertainment is expected to benefit from its renovated gaming area at Galaxy Macau, a redefined strategy for concerts and events at Galaxy Arena, an expanded sales team, and the rollout of smart tables. Initial results from these efforts are already visible, with July market share improving, table drop increasing by 15-20 percent sequentially from 2Q, and visitation to Galaxy Macau rising by 30 percent quarter-to-date and 50 percent in August compared to 2Q.
These developments are anticipated to coincide with broader market benefits, including the completion of Zhuhai Airport’s Terminal 2 and the fourth cross-harbor bridge connecting the peninsula to Cotai by year-end.
