Q1 got off to a good start. Dragged down by the epidemic in March, retail sales were still outstanding: 1Q22 companies achieved GGR of 3.243 billion yuan, -13.0% month on month and -30.1% year on year. This is mainly due to the recent spread of COVID-19 in the mainland, and the tightening of tourism policies affected the number of tourists. By business, VIP GGR was 566 million yuan, -20.6% month-on-month and -68.0% year-on-year, mainly because the company terminated the operation of the intermediary VIP lounge. Midfield GGR was 2,531 million yuan, -11.8% month-on-month and -7.8% year-on-year. The retail business performed well, second only to 2Q21 in a single quarter. Among them, February's Lunar New Year performance was the best in history. The company's adjusted EBITDA was 575 million yuan, -44.9% YoY and -33.1% YoY.
The number of self-transcoding services operated by Galaxy Macau has doubled, and StarWorld Hotel will target the midfield: 1Q22 Galaxy Macau VIP GGR was 566 million yuan, +4.4% from the previous year and -56.5% from the same period last year. Among them, the number of self-operated VIP lounges converted was 17.914 billion yuan, +111.6% month-on-month and +121.2% year-on-year. This may be due to the conversion of some of the original intermediary VIP clients into self-operated VIP clients. Since Star Hotel originally only operated intermediary lounges, the brokerage VIP business will be repositioned after termination, and will be mainly aimed at midmarket customers in the future.
May Day was mainly contributed by tourists from Guangdong Province: during the May 1st Golden Week, the number of visitors to Macau fell nearly 20% year on year. This was mainly because the tightening of tourism policies prevented mainland visitors from outside Guangdong from visiting Macau. The overall hotel occupancy rate improved to a low of 70-80%.
Galaxy Phase III has basically been completed, and Galaxy Phase 4 is progressing steadily: Galaxy Macau Phase III, which includes Raffles Hotel, the International Convention and Exhibition Center and the Andaz Hotel, has been basically completed. The opening time will depend on how the industry recovers. The capital expenditure of Galaxy Macau Phase IV is estimated at HK$29 billion. The project is continuing.
Profit forecasts and investment ratings: As the pandemic recedes and tourism policies are relaxed and Galaxy Phase III opens to expand production capacity, we expect the company's total revenue for 22-23 to be 26.39 billion yuan and 39.92 billion yuan, and the company's EBITDA is 4.52 billion yuan and 12.32 billion yuan. We gave the 22-year target EV/EBITDA 15x, corresponding to a reasonable value of HK$48, maintaining the “Recommended” rating.
Risk warning: risk of repeated outbreaks in mainland China; risk of tightening exchange controls; risk of renewal of gambling cards.