2Q24 results were better than market expectations

Galaxy Entertainment announced 2Q24 results on August 15: net revenue of HK$10.919 billion, up 26% year on year, up 3% month on month, returning to 83% level in 2Q19; adjusted EBITDA was HK$3.176 billion, up 28% year over year, up 12% month on month, returning to 73% level in 2Q19, better than Bloomberg's agreed expectations of HK$3.065 billion.

We believe that Galaxy's performance was mainly due to: 1) Galaxy Phase 3 property sales driven the company's overall market share increase, which rose from 17.2% in 1Q24 to 18.8% in 2Q24; 2) midfield gaming revenue (other than city clubs) recovered to 121% in 2Q19.

Development trends

The main points of the management public results meeting are as follows:

Market share continued to be above the 2Q24 level in July and August 2024. Management pointed out that midfield bets in August were 10-15% higher than 2Q24;? Since the 3Q quarter, the number of visitors to Galaxy's properties has increased by about 30% compared to the 2Q24 average;? The management expects to host more performance events at Galaxy Arena in the future to attract more gaming and non-gaming customers to visit its properties;? Galaxy announced an interim dividend of HK$0.50 per share, equivalent to a 1H24 dividend payment ratio of 50% (historical level of 30-35%);? Management noticed that due to industry peers generally rationalizing and focusing on profitability, the industry's marketing rebate expenses are gradually stabilizing;? Management believes that the crackdown on illegal exchange of foreign exchange and money exchanging parties since May 2024 has had little impact on the company's business operations;? The capital expenditure for the second quarter was approximately HK$1.1 billion, and management expected the total capital expenditure for 2024 to be around HK$6 billion.

Profit forecasting and valuation

We maintain our 2024 and 2025 adjusted EBITDA forecasts unchanged. The company's current stock price corresponds to 8 times 2024 and 6 times 2025 EV/adjusted EBITDA (financial assets included in cash). We maintained our outperforming industry rating, but considering central valuation adjustments, we lowered our target price by 8% to HK$42.00, corresponding to 12 times 2024 and 10 times 2025 EV/adjusted EBITDA. There is 42% 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.