Galaxy Ent 3Q revenue down 29 pct despite new openings
Macau-based casino operator Galaxy Entertainment Group Ltd on Thursday reported revenue of HKD12.3 billion (US$1.59 billion) for the third quarter of 2015, down by 29 percent from the prior-year period. Revenue was however up by 5 percent from the second quarter after the May opening of new casinos, the firm said in a filing.
The company reported adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) of HKD2.1 billion for the three months to September 30, down by 36 percent year-on-year but up 13 percent sequentially. Second quarter adjusted EBITDA had declined about 17 percent from the first quarter, according to previous filings.
“That is slightly ahead of consensus of HKD2.05 billion and compares with UBS estimates of HKD2.09 billion,” said analysts Anthony Wong and Angus Chan of UBS Securities Asia Ltd.
The casino operator said “bad luck in gaming operations” reduced its third quarter adjusted EBITDA by approximately HKD131 million.
The company said it continued to ramp up Phase 2 of its Cotai property Galaxy Macau and of Broadway Macau. Both properties opened on May 27.
Market wide in Macau, accumulated gross gaming revenue for the July to September period was down 34.4 percent year-on-year and down 4 percent from the second quarter.
“The challenging market conditions that we have experienced over the past year have continued into the third quarter this year,” the company said in Thursday’s filing to the Hong Kong Stock Exchange.
“Despite continuing headwinds in the Macau market, Galaxy Entertainment achieved a very solid 5 percent increase in revenue and even more satisfactory 13 percent increase in adjusted EBITDA in the third quarter when compared with the second quarter,” Lui Che Woo, chairman and founder of Galaxy Entertainment, said in a statement accompanying the results.
“During the quarter, we continued to build on the successful May 2015 launch of Galaxy Macau Phase 2 and Broadway Macau by opening most of the retail and hospitality facilities,” said Mr Lui, adding that additional facilities at the properties will open by year-end.
The company aims to save HKD800 million by controlling costs, Galaxy Entertainment said on Thursday. The firm said it would implement cost savings of HKD400 million to HKD500 million at Galaxy Macau Phase 2, without disclosing details.
“We are now focused on moving all of our operations up the efficiency curve as rapidly as possible, without compromising customer service. To that end we are driving a cost control programme with the goal of delivering HKD800 million in savings for the group,” Mr Lui said.
The operating cost saving programme, planned for a 12 to 18 month period, “seems to be estimated savings from a previously planned budget, and not all in incremental savings from current levels,” said the UBS team.
“Management indicated they have achieved [circa] 30 percent of the HKD800 million through the first quarter to third quarter of 2015, with majority of savings coming from lower labour costs, general marketing expenses (not player reinvestments) and procurements,” they added following a conference call with Galaxy Entertainment’s management.
Mass appeal
The casino operator said its flagship Galaxy Macau recorded revenue of HKD8.7 billion in the three months to September 30, down 22 percent year-on-year. That was still an improvement of 9 percent when judged quarter-on-quarter, Galaxy Entertainment said.
The property’s adjusted EBITDA was down 30 percent year-on-year but rose 19 percent from the second quarter. Revenue from VIP players fell 38 percent from the prior-year period and 4 percent from the previous quarter. Mass gaming revenue fell 2 percent from a year earlier although it rose 21 percent sequentially.
“Mass revenue at Galaxy Macau is a positive surprise and we expect investors to react positively,” said UBS’ Mr Wong and Mr Chan in Thursday’s note.
Broadway Macau, which does not have a VIP component, recorded revenue of HKD189 million for its first full quarter of operation, including HKD57 million of non-gaming revenue.
StarWorld Macau, on the Macau peninsula, reported third quarter revenue of HKD2.9 billion, down by 48 percent year-on-year. VIP gaming revenue at the property fell 15 percent quarter-on-quarter and 59 percent from a year earlier. Mass casino revenue showed a 12 percent sequential improvement but was still down 5 percent from a year ago.
On Thursday, Galaxy Entertainment said it would “manage its business including its revenue and EBITDA mix consistent with the evolving Macau market trends towards mass”.
“Our efforts have resulted in increasing our mass, slots and non-gaming revenue mix from approximately one third of total revenue in the third quarter of 2014 to approximately one half in the third quarter of 2015,” the firm said.
Casino operators in Macau have been adjusting to the relative advance of the mass segment.
Galaxy Entertainment recently opened the Pavilion VIP Room, a 41-table cash-play space for the so-called ‘premium mass’ segment, with minimum bets ranging from HKD2,000 to HKD10,000. It has also launched Pavilion Poker – a mainly casual cash play poker room – at the heart of its gaming floor at Galaxy Macau.
“On the ground, we hear that the new premium mass area at Galaxy Macau has been performing well,” Credit Suisse AG analysts Kenneth Fong and Isis Wong wrote in a note on Monday. “Longer term, as VIP gradually stabilises and traffic flows increase to Cotai, Galaxy sees room for outperformance on low expectations,” they added.
Galaxy Entertainment’s Mr Lui said: “Spending behaviour in Macau remains cautious, but we are very confident in the longer term outlook and prospects for Macau.”
“Given the encouraging results during Golden Week in early October and the positive supportive comments made by the government, we are cautiously optimistic that we are starting to see the market stabilise,” he added.
(Updated at 11.18am, Oct 16)
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