Summary of results in the second quarter of 21: Galaxy's net income rose 9.8% from a year earlier, up 9.1% from a month earlier to HK $5.57 billion. The number of transcodes of VIP tables increased by 438% year-on-year, down 6.5% from the previous year, while midfield gambling revenue increased by 2118% compared with the same period last year and 7.4% from the previous year. The Group's adjusted EBITDA turned to a profit compared with the same period last year, an increase of 31.8% from the previous month to HK $1.13 billion. Excluding the impact of net earnings, core EBITDA grew 53 per cent month-on-month; it performed well, thanks in part to the excellent performance of retail (43 per cent month-on-month growth in mall revenue) and good cost control. The EBITDA rate increased to 20.3%. In the first half of the year, net income rose 71 per cent year-on-year to HK $10.7 billion, while EBITDA and net profit turned to a profit of HK $2bn and HK $900m, respectively, making it the first gaming company in the Macau industry to record a net profit during the outbreak. The overall performance is good. The Group's balance sheet remained very strong, with net cash of HK $31.6 billion (the strongest in the industry and earning interest income of US $300000 per day). Due to the persistence of the epidemic, dividends are not paid. Future dividend policies will depend on the recovery and stability of the industry. In addition, it is believed that the recovery of the short-term industry will fluctuate.
Performance profile of Galaxy Macau and Star Hotels: during the period, net income of Galaxy Macau and Star Hotels increased by 11.5% and decreased by 8% to HK $3.8 billion and HK $900 million, respectively, while adjusted EBITDA increased by 21% and decreased by 21% to HK $9.2 and HK $140 million, respectively. The EBITDA rates were 24.3% and 14.5%, respectively. The hotel occupancy rates of "Galaxy Macau" and Star Hotel are 53% and 77% respectively, continuing to increase.
The third phase of the Galaxy Macau project update: the third phase of the Raffles Hotel (offering 450 deluxe suites) is expected to be launched in early 2022 (this project will enhance the ability and advantage of receiving high-end customers). The Andas Hotel and Exhibition Center may be launched at a later date.
Other project updates: the Hengqin project will be developed into a non-gambling project. The group is still interested in Japan and believes that there are good long-term opportunities.
Maintain the buy rating with a target price of HK $70.51: good performance in the first half of 21; the first gaming company in Macau to record a net profit during the outbreak. Due to the Group's good products and services, the strongest balance sheet in the industry, the strong executive ability of the management, and the launch of the third and fourth phases of Galaxy, Hengqin and potential overseas projects in the future, we are full of confidence in the long-term development of the Group. We maintain our buy rating. The target price is HK $70.51, equivalent to 18 times the 2022 EV/EBITDA.
Risk factors: we believe that the following are some important risks: 1) economic growth is worse than expected, 2) policy risks, 3) competition from other operators, 4) the impact of COVID-19 epidemic is greater than expected, 5) the industry recovers faster than expected.