Overview of results for the first quarter of '24: Galaxy's net revenue increased 49.6% year over year, up 2.3% month-on-month to HK$10.55 billion (recovering to 80.9% in the same period in 2019). The number of VIP table conversions increased 78.5% year over year, up 11.2% month on month (returning to 19.0% in the same period in 2019); midfield gaming revenue increased 57.0% year over year and decreased 1.3% month on month (112% of the same period in 2019 due to Galaxy Macau's low net win rate). The Group's adjusted EBITDA increased 48.7% year over year, up 1.0% month-on-month to HK$2.84 billion (recovering to 71.2% in the same period in 2019), and the EBITDA rate was 26.9%. The market share decreased 0.3 percentage points month-on-month to 17.3%. Overall results are in line with expectations. The Group maintains a very stable balance and net cash holdings of HK$25 billion (the strongest in the industry).
“Galaxy Macau” and StarWorld Hotel performance overview: The net revenue of “Galaxy Macau” and StarWorld Hotels increased 56% and 46% year-on-year respectively during the period, up 1.5% and 9.1% month-on-month to HK$8.3 billion and HK$1.4 billion (recovering to 90% and 46% respectively in the same period in 2019); adjusted EBITDA was HK$2.6 billion and HK$400 million, respectively (up 2% and 23% month-on-month respectively, returning to 86% and 46% in the same period in 2019). EBITDA rates were 31.4 and 31.8%, respectively.
Hotel occupancy rates for Galaxy Macau and StarWorld Hotel were 97% and 100%, respectively. The performance of “Galaxy Macau” was partly affected by large-scale adjustments in the gaming area in January and early February; after the completion of the project, traffic has improved markedly. Additionally, the Group will focus on adding innovative catering and retail products. In terms of Star Hotels, the Group is evaluating a series of upgrade projects, including the main gaming floor, arrival experience in the hotel lobby, and additional dining options.
“Galaxy Macau” Phase 3 and 4 updates: “Galaxy Macau” will launch its 10th hotel brand in mid-2025 — Capella Hotels & Resorts (17 stories high and has about 100 top luxury sky villas and suites; each sky villa has facilities such as well-lit terraces, transparent infinity pools, outdoor lounges, sunbathing, and a hidden winter garden, which can provide customers with an unparalleled luxury experience). The Group is also continuing to advance the fourth phase of the “Galaxy Macau” construction project, which is expected to be completed in 2027. The project has a development area of about 600,000 square meters and will introduce a number of high-end hotel brands entering Macau for the first time, with a 4,000-seat theatre, diverse dining, retail, non-gaming facilities, gardens and water park areas. In the 2024 capital expenditure budget, about 5 billion yuan will be used for the third and fourth phases of “Galaxy Macau”. As for license-related investments, it is estimated that about 30% will be capital expenses and 70% will be operating expenses.
Other key points: According to information, during the May Day holiday, the betting amount of the Group's midfield and gaming machines increased 20% compared to the same period in 2019. The market share in April-May rebounded from the past 3 and 6 months, benefiting from an increase in sales staff (currently around 300). We believe the Group's market share will reach 20% in the future. The Group is also introducing smart gambling tables, which are expected to be released in the “Galaxy Macau?” before the third quarter Installation; installation can be completed on all projects before the end of the year. Although the industry is fiercely competitive, the group only competes for quality and service, not price. The Group also expressed interest in the development of Thailand.
Maintaining the buy rating, target price HK$50.97: The Group's results for the first quarter of '24 are in line with expectations. With the increase in sales staff, the introduction of smart gambling tables, and the launch and optimization of more products, we believe the Group's worst situation is over. Since the Group has good products and services, the most stable balance and liability situation in the industry, strong management's execution ability, and the launch of Galaxy and the Cotai Phase IV project, Hengqin project and potential overseas projects in the future, we are confident in the long-term development of the Group. We maintain a buy rating. The target price is HK$50.97, equivalent to 16 times the 2024 EV/EBITDA.
Risk factors: We believe the following are some of the more important risks: 1) economic growth is worse than expected, 2) policy risk, 3) competition from other operators