The results in the first quarter of 21 are in line with expectations, and the recovery continues.
Performance profile for the first quarter of 21: Galaxy's net income rose 0.5 per cent year-on-year, down 0.1 per cent from a month earlier to HK $5.1 billion. The number of VIP tables transcoded fell 31% from the same period last year, up 7.6% from the previous month; midfield gambling revenue increased by 1.2% compared with the same period last year and 1.1% from the previous year. The group's adjusted EBITDA rose 204 per cent year-on-year, down 15 per cent to HK $860 million from a month earlier, affected by a 52 per cent month-on-month drop in EBITDA (the first quarter was the off-season for the building materials business) and the lack of an one-time insurance benefit of RMB100m in the previous quarter. If you only look at Macau's gaming and entertainment business, its EBITDA has increased by 6% month-on-month and continues to improve. The daily operating expenditure was maintained at the level of about $2 million per day in the third and fourth quarters of last year, and the cost was well controlled. The EBITDA rate is 16.9%. The overall performance is in line with expectations. The Group's balance sheet remained very strong, with net cash of HK $33.6 billion (the strongest in the industry and earning interest income of US $300000 per day).
Performance profile of Galaxy Macau and Star Hotels: during the period, net income of Galaxy Macau and Star Hotels increased by 3 per cent and 6 per cent month-on-month to HK $3.4 billion and HK $1 billion, respectively, while adjusted EBITDA increased by 3.8 per cent and 13.3 per cent to HK $7.6 and HK $170 million, respectively. The EBITDA rates were 22.4% and 16.8%, respectively. The occupancy rates of Galaxy Macau and Star Hotel are 44% and 62%, respectively.
Galaxy Macau Phase III project update: the third phase of the Raffles Hotel (offering 450 deluxe suites) is expected to be launched at the end of 21 / early 22 (this project will enhance the ability and advantages to receive high-end customers). The exhibition center may be launched at a similar / later time.
The May Day Golden week performed well and the recovery continued: it is understood that the performance (income and flow of people) in March was the best single month since the outbreak, and it is believed that gambling revenue continued to improve in April. During the May Day Golden week, it is believed that gambling revenue has returned to 50% of the same period in 19 years, driven by high-end midfield, while the number of midfield business and VIP gaming tables transcoding is believed to have returned to 60-70% and 20-30% respectively in the same period in 19 years. The occupancy rate of Cotai Hotel is 80%, and the retail business has increased by 80% compared with the same period in 19 years. The recovery of the key indicators continues and a strong performance is expected during the summer vacation.
Maintain the buy rating with a target price of HK $82.26: the first quarter of 21 results are in line with expectations; it is believed that the May Day Golden week has performed well and the recovery of the key indicators has continued. Due to the Group's good products and services, the strongest balance sheet in the industry, the strong executive ability of the management, and the launch of the third and fourth phases of the Galaxy project, the Hengqin project and potential overseas projects in the future, we are full of confidence in the long-term development of the Group. We maintain our buy rating. Raise the target price to HK $82.26, equivalent to 16 times the 2022 EV/EBITDA.
Risk factors: we believe that the following are some more important risks: 1) economic growth is worse than expected, 2) policy risks, 3) competition from other operators, 4) the impact of COVID-19 epidemic is greater than expected, and 5) the recovery rate of the industry is slower than expected.