GGRAsia – Galaxy Ent can survive 6 years on cash pile: JP Morgan

Galaxy Ent can survive 6 years on cash pile: JP Morgan

Apr 06, 2020 Newsdesk Latest News, Macau, Top of the deck

Macau casino operator Galaxy Entertainment Group Ltd has enough financial liquidity to survive in the Macau market during the coronavirus pandemic with “near-zero revenue” for as many as six years. That is according to a Monday note from JP Morgan Securities (Asia Pacific) Ltd.

All six Macau operators have “ample liquidity to survive this unprecedented period of ‘near-zero revenue’ for over a year (and up to 6 years, in the case of Galaxy),” wrote analysts DS Kim, Derek Choi and Jeremy An.

They estimated that Galaxy Entertainment had fixed operating costs of US$3 million per day – which the brokerage projected as approximately US$90 million per month; and maintenance capital expenditure (capex) of US$11 million per month. The company owns and operates two flagship properties in Macau – Galaxy Macau (pictured) on Cotai, and StarWorld Hotel on the city’s peninsula – as well as smaller venues in both districts.

In its full-year results published in late February, Galaxy Entertainment said it had net cash of HKD51.7 billion (nearly US$6.7 billion) and only HKD600 million in debt.

The group does have financial commitments on Phases 3 and 4 of Galaxy Macau, and also has ambitions to acquire a casino licence in Japan.

Galaxy Entertainment had noted to GGRAsia in late February that it was still aiming at a first-half 2021 launch for a portion of Galaxy Macau Phase 3, despite having paused some construction work at Galaxy Macau amid the coronavirus alert.

JP Morgan noted in its Monday memo, referring to all six Macau operators: “The industry can stay EBITDA [earnings before interest, taxation, depreciation and amortisation] break-even at the gross gaming revenue run-rate of around MOP300 million [US$37.6 million] per day, and cash-flow break-even (post interest cost and maintenance capex) at MOP400-million levels.”

According to the institution, casino operator SJM Holdings Ltd has “enough cash to survive four years of no revenue,” while Sands China Ltd, Melco Resorts and Entertainment Ltd and Wynn Macau Ltd “have about two years”. MGM China Holdings Ltd has enough reserves to last “over a year” in this challenging business environment, added JP Morgan.

“To put it simply, investors need not worry about covenant breach for at least a year of ‘zero revenues’,” added the analysts.

In a Friday note, Deutsche Bank Securities Inc had said that United States-based casino firm MGM Resorts International – parent of MGM China – had enough room for financial manoeuvre during the crisis. While the Macau casino market remains open, revenue predictions for April have been gloomy from some commentators due to travel restrictions that have almost stemmed the flow of tourism to the Chinese casino hub. In MGM Resorts’ home market, the Nevada governor last week extended casino closures in that state to April 30.

Notwithstanding those challenges, “we remain of the view that MGM [Resorts] has more than adequate liquidity, with levers to pull,” stated analysts Carlo Santarelli and Steven Pizzella.

On March 26 it was announced that the board of MGM China had recommended the payment of a final dividend for 2019 amounting to HKD315.4 million in aggregate.