Q3 adjusted EBITDA is slightly better than expected
Galaxy Entertainment's Q3 net income in 2021 was HK $4.28 billion (the same below), 176.3% / month-on-month compared with the same period last year, and midfield gambling revenue was-24.8% compared with the previous month, which was in line with the industry average (- 24.5%). The group's adjusted EBITDA is 503 million yuan (month-on-month-55.6%, year-on-year loss to profit), which is slightly better than we expected (450 million), mainly due to the increase in the proportion of midfield with higher profit margins and the maintenance of strict cost control measures. Although the retail revenue of Galaxy Macau's shopping malls is-36.4% month-on-month this quarter, it is believed that high-end retail will rebound sharply after the relaxation of immigration controls. The adjusted property EBITDA of the company's Macau gaming-related business is 470 million yuan, which has recovered to 11.7% of the same period in 19 years, which is much faster than that of the industry. Galaxy Entertainment has recorded a total of US $430 million in adjusted property EBITDA in the last four seasons (TTM 4Q), which is better than the US $310 million / 170 million / 120 million / 86 million /-170 million of Sands (1928 HK), Wynn Macau (1128 HK), Melco (MLCO US), MGM China (2282 HK) and SJM (880 HK) respectively.
Galaxy Phase III facilities in Macau will be launched in stages according to market conditions.
Management said that when exit controls were relaxed on October 19, gambling revenues rebounded quickly and quickly returned to the level of July this year, in line with the performance of other betting companies. Although the actual number of days of operation for the whole month in October is only about 10 days, the company can almost break even with EBITDA. The company maintains its original pace of development and will not be affected by the epidemic. The Galaxy Raffles Hotel Macau (with 450 full rooms) will open in 2022 (originally scheduled for early 22), followed by the Galaxy International Convention Center and the Andas Macau Hotel. The Group also continues to press ahead with the construction of Galaxy Phase IV. Upon completion of the project, the territory and passenger carrying capacity of Galaxy Macau will more than double that of the current one. In the long run, the Group will carry out the renovation of the Broadway Hotel, and the development of Hengqin Land will also bring long-term opportunities.
Lower the target price to HK $50.10 and maintain the "overweight" rating
Based on the performance of Q3, we raised the adjusted EBIDTA forecast for 21 years from 12.5% to 3.06 billion yuan, but lowered the forecast for 22 and 23 years by 8.7% to 7.79 billion yuan and 14.67 billion yuan respectively, to reflect the delay in the next phase of large-scale relaxation of immigration controls caused by repeated recent outbreaks. The target price was lowered from HK $53.26 to HK $50.10, equivalent to 23.6% 12.3 times EV/EBITDA in 22 / 23, maintaining the "overweight" rating. Considering company 1) excellent operating efficiency, 2) high potential growth, 3) low uncertainty of license renewal, 4) huge high-end midfield business, 5) very healthy balance sheet (net cash of HK $27.8 billion), we still regard the company as the first choice among gaming stocks. Galaxy Entertainment's share price has fallen only 26.6 per cent year-to-date (as of November 15), significantly outperforming its peers (- 42.4 per cent on average), reflecting the reluctance of capital markets to sell.
Risk tips: (1) the risk of the spread of the epidemic; (2) the risk of casino license renewal; and (3) the impact of the economic slowdown on gambling demand.