GGRAsia – Galaxy Ent higher dividend payout possible: Jefferies

Galaxy Ent higher dividend payout possible: Jefferies

Oct 05, 2023 Newsdesk Latest News, Macau, Top of the deck

The “strong financial position” of Macau casino operator Galaxy Entertainment Group Ltd, in terms of net cash and free cash flow, “could lead to a higher dividend payout mid [to] long term,” suggested a note from Jefferies Hong Kong Ltd.

Galaxy Entertainment’s management was “relatively optimistic on the Macau outlook with earnings set to rebound back to 2019 levels,” wrote analyst Andrew Lee in a Monday memo.

The analyst noted that the casino firm had HKD12 billion (US$1.53 billion) net cash and HKD13.2 billion in cash and bonds.

“We believe the company could raise its dividend payout ratio (historically circa 30 percent) in the medium to longer term given its net cash position, lower capex, and positive free cash flow,” stated Mr Lee.

According to the note, Galaxy Entertainment’s staff head count is expected “to remain below 2019′s 21,000,” but the company faces “wage inflation, with staff accounting for circa “80 percent” of operational costs.

Mr Lee indirectly cited the casino firm’s management as saying that it expected “new amenities” from Phase 3 of its flagship Galaxy Macau property (pictured), to be “a key differentiator in 2024, given the change in player profile”.

That included the recently-added Raffles at Galaxy Macau hotel, as well as the new “Horizon Premium Club”, a gambling facility within the tower hosting that hotel.

Andaz Macau, the second of the two new hotels in Phase 3 of the complex, launched on September 15. The accommodation is directly connected to Galaxy International Convention Center (GICC) and the 16,000-seat Galaxy Arena, both of which launched earlier this year.

Mr Lee said that Galaxy Entertainment’s management noted the player profile in Macau “has changed, with younger-aged mass players (VIP players over 50 years), more females, … a higher percentage of non-Guangdong [province] players (longer length of stay), and family-oriented visitors (30 to 40 percent of gaming customers with families).”

With the new Phase 3 hotel towers opened in the third quarter this year, the total hotel room count at Galaxy Macau “increased to 5,000”, said Jefferies’ Mr Lee.

“Phase 4, includes gaming, [and] was originally slated for 2027,” wrote the analyst. But he added the firm now “targets to open [it] in 2026 with 1,600 larger and higher quality rooms planned, versus the original 2,500.”

The Jeffries analyst said the institution expected Galaxy Entertainment’s earnings “to continue improving” as the Macau gaming sector’s gross gaming revenue recovers, and the group’s premium mass tables are “back to pre-pandemic numbers post-Raffles opening”.

The brokerage expects the casino firm to achieve total turnover of HKD34.63 billion this year, and of HKD37.59 billion in 2024. Galaxy Entertainment’s net profit is forecast at HKD8.23 billion in 2023, and HKD9.97 billion next year.

Galaxy Entertainment reported a first-half profit of HKD2.89 billion, compared to a HKD850.47-million loss in the same period of 2022. It also announced a special dividend of HKD0.20 per share, payable on October 27.