Core views
The company's performance for 23Q4 and the full year of 2023 was in line with expectations. Total net revenue for 23Q4, adjusted EBITDA, and gaming revenue all continued to improve month-on-month compared to the same period in 2019. Among them, midfield business recovery was impressive. Midfield gaming revenue continued to improve after surpassing the same period in 2019. Galaxy Macau is still the core property, and midfield business recovery clearly leads the industry. The company's current balance and liability situation is high. It continues to advance the construction of the third and fourth phases, and has completed the opening and operation of several projects in 2023. In the future, it is expected that the company will continue to benefit from Macau Gaming's scarce supply advantages, leading growth, and asset quality.
occurrences
The company announced its 23Q4 and 2023 annual results. Net revenue for the full year of 2023 was HK$35.7 billion, up 211% year over year. The adjusted EBITDA for the full year was HK$10 billion compared to HK$600 million in 2022. Net profit attributable to mother for the year was HK$6.8 billion compared to HK$3.4 billion in 2022.
Brief review
The performance was in line with expectations, and the recovery of gaming revenue increased 23Q4's overall net revenue by HK$10.3 billion month-on-month, up 254% year-on-year, 7% month-on-month, and increased month-on-month. The adjusted EBITDA for 23Q4 was HK$2.8 billion, compared to HK$200 million for the same period in 2022. The overall 23Q4 performance maintained a steady recovery trend, in line with expectations.
The net profit ratio of the 23Q4 gaming business was low, reducing the adjusted EBITDA by about HK$103 million. After the net win ratio was normalized, the adjusted EBITDA for the fourth quarter was HK$2.9 billion, compared to HK$100 million for the same period in 2022. Compared with the same period in 2019, total net revenue for 23Q4 recovered to about 79.5% in the same period in 2019, a recovery of +3.6 pct compared to 23Q3. The adjusted EBITDA for 23Q4 recovered to 69.3% compared to the same period in 2019, and the overall recovery trend increased month-on-month; on the gaming data side, the 23Q4 VIP business's gaming revenue was about HK$909 million, recovering to about 14.1% compared to the same period in 2019, and a recovery rate of +1.3 pct compared to 23Q3.
The 23Q4 midfield business gaming revenue was approximately HK$7.826 billion, recovering to about 106.8% from the same period in 2019. The recovery rate was +5.1 pct compared to 23Q3, and the recovery level continued to improve compared to 2019.
23Q4 slot gaming revenue was approximately HK$508 million, recovering to about 77.1% compared to the same period in 2019, and +0.3 pct of recovery compared to 23Q3. 23Q4's overall gaming revenue was approximately HK$9.243 billion, recovering to about 64.0% from the same period in 2019, with a recovery rate of +2.9pct compared to 23Q3. Looking at major properties, Galaxy Macau is still a core contributor property, with net revenue of HK$27.7 billion, up 274% year over year. Its adjusted EBITDA for the whole year was HK$9.1 billion, and only HK$295 million in 2022. Among them, Macau Galaxy's net revenue in 23Q4 recovered to 87.7% compared to the same period in 2019, and the recovery rate was +5.9pct month-on-month. In 23Q4, Macau Galaxy Midfield Gaming revenue recovered to about 125.8% in the same period in 2019, with a recovery of +5.0 pct compared to the previous month. The occupancy rate for Galaxy Macau 23Q4 was 95%, and StarWorld Hotel reached 100%.
The high quality asset situation progressed smoothly, and the scarce supply sector continued to benefit. As of the end of 2023, the company's net cash was HK$235 billion and liabilities were only HK$1.5 billion. It was announced that a special dividend of $0.30 per share will be paid on April 26, 2024. Cash on hand and excellent balance and liability conditions are expected to help the company continue to advance the remaining capex in the third and fourth instalments and be able to better complete the investment amount promised to the SAR government. In 2023, the company completed a number of development projects, including the opening of the 450-suite Galaxy Raffles Macau, Tianfeng High-End Betting Zone, Galaxy International Convention Center, and Galaxy Arena. The Andaz Hotel is fully open before the 2024 Lunar New Year. In 2023, the company held a total of about 200 exhibition events and 85 concerts and performances at the Galaxy International Convention Center, Galaxy Arena and Broadway stage. Phase IV is still in progress. The fourth phase has a development area of about 600,000 square meters and is targeted to be completed in 2027, including a number of high-end hotel brands entering Macau for the first time, a 4,000-seat theatre, diverse dining, retail, non-gaming facilities, gardens, water play areas and casinos. It is expected that Macau Gaming will continue to benefit from the stability of scarce supply attributes. As a leading enterprise, the company has stable development space in the next few years, and is expected to benefit from the construction of the Hengqin Guangdong-Macao Deep Cooperation Zone. The balance and liability situation is high, and it continues to improve.
Investment proposal: Net profit due to mother is estimated to be HK$11.77 billion and HK$15.07 billion from 2024 to 2025. The current share prices correspond to PE of 16X and 12X, respectively, to achieve adjusted EBITDA of HK$14.14 billion and HK$17.48 billion, respectively. The corresponding EV/EBITDA is 13X and 11X, maintaining an “increase” rating.
Risk analysis
1. If the restoration of passenger traffic from the Mainland to Macau falls short of expectations, there may be a situation where the overall restoration of passenger traffic falls short of expectations and the utilization rate of gaming tables is not high, which affects revenue side restoration, and the share of some rigid costs increases, putting greater pressure on performance; 2. If the Macau gaming VIP business shrinks significantly in the future, and it is difficult to provide sufficient passenger flow to make up for it, it will be more difficult to recover gross gaming revenue than before the pandemic. The new gaming law stipulates an upper limit on the number of gaming tables. It may put pressure on the revenue side; 3. Each license promises investment amounts for the next 10 years, mainly focusing on non-gaming and foreign customer drainage. If it is difficult to obtain a good return on investment, it may cause pressure on profitability; 4. If consumers believe that the gaming industry has strong optional consumption attributes and limited carrying capacity, it may affect consumption choices to a certain extent.