Macau casino operator Galaxy Entertainment Group Ltd might want to examine tapping debt capital markets in the post-founder era, as overall it could boost shareholder returns. That is according to analyst Vitaly Umansky, of Seaport Research Partners, in a Monday note after the casino company gave the news that day of the death on November 7 of the firm’s founding chairman Lui Che Woo.
Mr Umansky stated: “One area we hope to see develop over time would be capital structure, as Galaxy remains one of the few debt-free casino companies with ample debt capacity.”
He added: “If Galaxy were to take on some debt – while remaining a solid investment grade credit – with relatively low cost, equity returns (and return of capital) could be significantly enhanced.”
The casino company said last week in unaudited highlights of its third-quarter results that as of September 30 its balance sheet remained “healthy and liquid.” Cash and liquid investments were HKD28.6 billion (US$3.68 billion) and the net position was HKD27.4 billion after debt of HKD1.2 billion.
Seaport stated: “While Galaxy paid a HKD0.50 dividend [per share] in October – 50 percent payout – on top of the HKD0.30 [apiece] special dividend announced earlier this year, we would like to see further increase in return of capital to shareholders.”
Analyst Mr Umansky observed: “We see further ability to expand return of capital to shareholders. There is potential for the dividend to rise over the next few years as operating cash flow improves. But more impactful would be for Galaxy to incorporate low-cost debt into its capital structure which would increase equity returns.”
Aside from the potential for a different approach to capital management in a post-founder stage of the business, Seaport said it did not “anticipate any changes” in Galaxy Entertainment’s “strategy or management structure”.
Mr Umansky said: “Galaxy management structure and strategy remains in place with Francis Lui remaining firmly in place and will most certainly be elevated to chairman.”
That was a reference to Francis Lui Yiu Tung, a son of the late chairman, and a long-standing deputy-chairman of the firm.
“The Lui family retains over 50 percent ownership in Galaxy, this will not change,” observed Mr Umansky.
A key element of the Macau strategy was further expansion of Galaxy Macau.
Mr Umansky said, referring to Capella at Galaxy Macau, a new luxury hotel tower at the property anticipated to launch in 2025, and to Phase 4 of the resort: “The opening of Capella luxury resort at Galaxy Macau – 94 villas and suites, along with amenities and gaming – will further enhance the property’s premium positioning and drive further share gains in late 2025 and into 2026.”
That would be followed by “the opening of Phase 4 in 2027, which will drive further [market] share expansion,” stated the analyst.
