The results in the third quarter of 21 are in line with expectations.
Summary of results in the third quarter of 21: Galaxy's net income increased by 271.4% year-on-year, down 16.0% from the previous month to HK $4.28 billion. The transcoding number of VIP gaming tables increased by 135.8% year-on-year, decreased by 24.2% month-on-month, and midfield gambling revenue increased by 540.9% year-on-year and decreased by 24.8% compared with the same period last year. Average daily operating expenses continued to be optimized, reducing by 4% month-on-month to $2.3 million. The group's adjusted EBITDA turned to a profit from a year earlier, down 55.6 per cent from a month earlier to HK $500 million; the EBITDA rate was 11.7 per cent. The results in the third quarter were mainly affected by the repeated epidemic situation, and the overall performance was in line with expectations. The Group's balance sheet remained very strong, with net cash of HK $27.8 billion (the strongest in the industry and earning interest income of US $300000 per day). Due to the relaxation of epidemic prevention measures each time, the recovery of passenger flow is obvious, and the group is full of confidence in squeezing demand. It is believed that the industry will gradually recover, but the trend of short-term recovery may fluctuate. In addition, the vaccination rate of the group vaccine has reached 92%.
Performance profile of Galaxy Macau and Star Hotels: during the period, net income of Galaxy Macau and Star Hotel decreased by 25.5% and 28.8% month-on-month to HK $2.84 billion and HK $660 million, respectively, while adjusted EBITDA fell by 50.9% and 81.5% to HK $4.5 and HK $30 million, respectively. The EBITDA rates are 16.0% and 3.8%, respectively. The occupancy rates of Galaxy Macau and Star Hotel are 45% and 56%, respectively.
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 2022 (the specific timetable will depend on market conditions. This project will enhance the ability and advantages of receiving high-end customers), while the Anders Hotel and Exhibition Center will also be launched at a later time. In the future, there will be the fourth phase of "Macao Galaxy" and the new project of Hengqin, which has great potential for long-term growth.
Other project updates: the Group is still interested in Japan and believes there are good long-term opportunities.
Maintain the buy rating with a target price of HK $51.71: the Group's results in the third quarter of 21 are in line with expectations. 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 the Galaxy project, the Hengqin project 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 $51.71, which is equivalent to 14.5 times of EV/EBITDA in 2023.
Risk factors: we believe that the following are some more 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, and 5) the recovery rate of the industry is slower than expected.