Summary of results in the fourth quarter of 21: Galaxy's net income fell 6.9% from a year earlier, up 11.0% from a month earlier to HK $4.75 billion. The transcoding number of VIP gaming tables decreased by 60.6% year-on-year and 37.8% month-on-month; mid-field gambling revenue increased by 7.5% and 31.6% respectively compared with the same period last year; and the overall gambling performance was better than that of the market. Average daily operating expenses are well controlled, with a year-on-year reduction of $32 million to $2.3 million. The group's adjusted EBITDA rose 107% to HK $1.04 billion month-on-month; the EBITDA rate was 21.9%. Excluding the impact of an one-time bad debt reversal and a higher net profit ratio, core adjusted EBITDA rose 49 per cent to HK $820 million month-on-month. The results in the fourth quarter were brilliant. The Group's balance sheet remained very strong, with net cash of HK $27 billion (the strongest in the industry and earning interest income of US $250000 per day). The group announced a special dividend of HK $0.30 per share, the first company in the industry to repay the dividend, showing the group's strong balance sheet and confidence in the future (it was observed that the retail performance of "Macau Galaxy" hit an all-time high in December; the overall performance of the Spring Festival was also good, driven by the high-end midfield. At the same time, it is also observed that VIP clients of previous intermediaries have shifted to proprietary / high-end midfield business.) . The future dividend policy will be decided on a case-by-case basis.
Performance profile of Galaxy Macau and Star Hotels: during the period, net income of Galaxy Macau and Star Hotels increased by 13.3% and 0.8% month-on-month to HK $3.21 billion and HK $670 million, respectively, while adjusted EBITDA rose by 68.1% and 76.0% to HK $7.6 and HK $40 million, respectively. The EBITDA rates were 23.7% and 6.6%, respectively. The occupancy rates of Galaxy Macau and Star Hotel are 39% and 55%, respectively.
The reserves of new projects are the largest in the industry, and there is great potential for long-term growth: the future group's new projects include the third and fourth phases of "Macau Galaxy", Hengqin and overseas projects; reserves are the largest in the industry and have great potential for long-term growth. The construction of the third phase of "Macau Galaxy" has been basically completed, and the launch time will depend on the market situation. The Raffles Hotel (offering 450 deluxe suites) will be launched first, followed by the Andas Hotel and Exhibition Center. The development of the fourth phase of "Macao Galaxy" also began. The total budget for phases III and IV is HK $50 billion, of which about HK $20 billion has been invested.
Maintain the buy rating with a target price of HK $55.46: the Group performed well in the fourth quarter of 21, and the special dividend was a pleasant surprise. 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 $55.46, equivalent to 17 times the 2023 EV/EBITDA.
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.