Galaxy Entertainment reported 1Q24 net revenue of HK$10.6bn (+2% QoQ, +50% YoY), and normalized adjusted EBITDA of HK$2.8bn (+1% QoQ, +49% YoY), lower than our expectation, mainly due to the layout adjustment disruption at the Galaxy Macau in January and February. We lower EPS forecast from HK$2.56 to HK$2.15 in 2024E, from HK$3.17 to HK$2.46 in 2025E, and introduce 2026E forecast of HK$2.88. We lower target price from HK$64 to HK$55. With 49% upside potential, we maintain Buy rating. 1Q24 results. During 1Q24, the company's total gross revenue, mass revenue, slot revenue, and VIP revenue recovered to 65%, 112%, 103%, and 18% of 1Q19 levels, respectively. EBITDA recovery 72% of 1Q19 level. Hotel occupancy rates at Galaxy Macau and StarWorld Hotel were 97% and 100%, respectively.

New hotel. The Galaxy Macau Capella, featuring a 17-storey hotel with c.100 sky villas and suites, is scheduled to open in mid-2025. The Galaxy Macau Phase four project is expected to be completed by 2027.

Strong balance sheet. As of March 31, the company's net cash position was HK$25bn.

Maintain Buy. We like Galaxy's amble land reserve and long-term growth potential. We lower target price from HK$64 to HK$55. With 49% upside potential, we maintain Buy rating.

Risks: Lower-than-expected revenue recovery; competition leads to lower margin.