1Q24 results are in line with the market's unanimous expectations

Galaxy Entertainment announced 1Q24 results on May 14: net revenue of HK$10.552 billion, up 50% year on year, up 2% month on month, returning to 81% level in 1Q19. The adjusted EBITDA was HK$2,835 billion, up 49% year on year, up 1% month on month, returning to 71% level in 1Q19, which is basically in line with Bloomberg's expectations of HK$2,827 billion.

We believe that Galaxy's performance was mainly due to: 1) a good 1Q24 win rate; 2) stable operating costs; however, this was offset by the following factors: 1) Macau Galaxy Properties' declining market share of gaming revenue; and 2) the disruption caused by the Macau Galaxy Gaming area renovation project after the Spring Festival.

Development trends

Key points of the management performance meeting are as follows:

1) During May 1st Golden Week in 2024, group-level midfielder and slot machine betting amounts returned to about 120% of the same period in 2019, and this trend continued after the holiday season;

2) Management expects Capella Hotels and Resorts to open in mid-2025 and is expected to have around 100 luxury villas and hotel suites;

3) Management expects to deploy smart RFID gaming tables in 3Q24, and will complete all installation and database management by the end of 2024 to improve gaming efficiency and the accuracy of customer reinvestment rates; 4) Management expects capital expenditure of about HK$5 billion in 2024, not including the committed investment amount of gaming licenses;

5) The company remains interested in Thailand and other overseas development opportunities, and is opening an overseas office in Bangkok.

Profit forecasting and valuation

We maintain the company's adjusted EBITDA expectations for 2024 and 2025. The current stock price corresponds to 11 times 2024e EV/adjusted EBITDA (financial assets credited to cash). We maintain our outperforming industry rating and maintain our target price of HK$45.80, which corresponds to 13 times 2024e EV/adjusted EBITDA, with 24% 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.