Macau casino developer and operator Galaxy Entertainment Group Ltd (GEG) on Thursday said it would soon start final discussions with the city’s government about table allocation for Galaxy Macau Phase 2. The second phase of the group’s flagship Cotai property is scheduled to open on May 27, along with a neighbouring casino hotel property revamped and rebranded as Broadway at Galaxy Macau.
“Yesterday we formally submitted our application for gaming tables to the Macau government. We believe that we will start soon the discussions with the government on the number of tables [that will be allocated],” said Galaxy Entertainment’s vice chairman Francis Lui Yiu Tung (pictured).
The company has said in previous public statements that Phase 2 has capacity for 500 tables and 1,000 slot machines.
The company reported on Thursday that its annual profit for 2014 grew by 3 percent year-on-year to HKD10.3 billion (US$1.33 billion).
Galaxy Entertainment shares jumped 3.35 percent to close the day at HKD35.50. The stock has slumped 19.6 percent so far this year, against the Hang Seng Index’s 3.2 percent gain, according to Bloomberg.
Speaking at a press conference following the results announcement, Francis Lui said the company would like to get “as many gaming tables as possible”. But he stated: “…we accept that in the current environment, the number of tables cannot grow indefinitely.
“We believe the government will be pragmatic … and we hope it can give us a reasonable number of tables,” the executive said, adding that Phase 2 of Galaxy Macau would probably have more mass market tables than VIP ones.
Analysts at UBS Securities Asia Ltd said they believe the casino operator will get significantly fewer new tables than the firm had expected when it started the development. “We think market expectations for net new tables have now come down to around 150, with allocations below that still likely to disappoint,” analysts Anthony Wong and Angus Chan wrote in a note on Thursday.
Weathering the storm
Michael Ting of CIMB Securities Ltd in Hong Kong said in a note on Thursday: “The next catalysts for GEG’s share price are likely to come from news flow on the table allocation for Galaxy Phase 2. Given the new capacity, we expect GEG’s full year 2015 earnings to be more resilient than its competitors.”
Grant Govertsen and Felicity Chiang of Union Gaming Research Macau Ltd said in a note following the results: “Specific to Galaxy, the company continues to punch above its weight with respect to the VIP segment and they are our preferred operator to bring new VIP supply online this year.”
Francis Lui said at the Thursday media briefing that the company has so far hired 2,500 people, from an estimated 8,000 new employees needed to staff the firm’s new operations at Galaxy Macau Phase 2 and Broadway. “We believe we will be able to hire the number of people we need,” added the executive.
UBS’s note said the final number of staff “should be much lower depending on the number of incremental live tables”.
Galaxy Entertainment management said Macau is experiencing the most challenging time in recent history, admitting that last year’s second half market conditions “were difficult”. The company cited China’s soft economic landing, higher labour costs and the Chinese anti-corruption drive.
“Everybody understands where the problem is, there are ups and downs. I think this is normal given the policy changes, [and] macroeconomic changes,” said Lui Che Woo, founder and chairman of Galaxy Entertainment.
The company’s chairman also said the firm would be betting more on non-gaming amenities as the market “moves into a new chapter”.
The casino operator announced a special dividend of HKD0.28 per share while noting it is “virtually debt free,” with a net cash position of HKD8.2 billion. Last year two special dividends totalling HKD4.9 billion were paid.
“We will have paid over HKD6 billion in special dividends, including the one we announced today,” Robert Drake, chief financial officer of Galaxy Entertainment, said at the press conference.
“Despite the challenging market conditions we are well positioned to weather the storm with a solid cash flow and strong balance sheet, which is important in today’s environment,” said Mr Drake.
He added: “We also believe the opening of the new properties will serve as a catalyst to help the market as well as our financial performance.”
(Updated on Mar 20, 8.15am)
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”Ramp ups [of new Macau casinos] are taking a little bit longer. The market is somewhat volatile at the moment, but we continue to look at all the opportunities and are still very comfortable that things are starting to move ahead”
Chief executive of MGM China Holdings