4Q23 results are basically in line with our expectations
Galaxy Entertainment issued an announcement on February 28 to announce 4Q23 results: net revenue of HK$10.319 billion, up 254% year on year, up 7% month on month, returning to 80% of 4Q19. Adjusted property EBITDA was HK$2,807 billion, turning profit year on year, up 1% month-on-month, returning to 69% level in 4Q19, which is basically in line with Bloomberg's expectations of HK$2,882 billion. We believe that Galaxy's performance is mainly due to: 1) the decline in the gaming revenue market share of Galaxy Macau and Star Hotel properties; and 2) pressure on profit margins.
Development trends
The main points of the management public results meeting are as follows:
During the 2024 Spring Festival holiday, the company's midfield betting amount and midfield gaming revenue reached 120% of the same period in 2019;
The management plans to expand the sales and hosting team to address the loss of market share;? Management expects to launch technology-related plans in 2024 (application of RFID chips in the field of gaming);
The company has established sales offices in Tokyo and Seoul, and is expected to expand overseas sales offices to Bangkok;
The company expects capital expenditure of HK$6.1 billion in 2024 for Galaxy IV, renovation and routine maintenance;
The company maintains the 2027 Galaxy Phase 4 opening plan and the 2025 Galaxy 3D project (about 100 high-end hotel products).
Profit forecasting and valuation
Due to the slower than expected escalation of Galaxy Phase 3, we lowered our adjusted EBITDA forecasts for 2024 and 2025 by 10% and 5% to HK$13.11 billion and HK$15.47 billion, respectively. The current stock price corresponds to 12 times 2024 eEV/adjusted eBitda (financial assets included in cash). We maintained our outperforming industry rating, but lowered our target price by 9% to HK$46.80, corresponding 13 times 2024e EV/adjusted EBITDA, with 11% upside compared to the current stock price.
risks
The recovery may be slower than expected; the volume of Galaxy Macau Phase 3 may be slower than expected; market share may be lost due to increased competition in the industry.