The opening of Phase 3 of the Galaxy Macau casino resort on Cotai – including a luxury hotel tower (pictured), an Andaz-branded luxury hotel and a conference centre – is more likely to be “mid-2021″ than “early 2021″, say several investment analysts covering casino gaming. They cited comments by the resort’s promoter Galaxy Entertainment Group Ltd during a Wednesday conference call following the latter’s first-quarter earnings highlights.
The casino firm said it would “’try its best to meet the original target of early 2021′”, though it was “’not unreasonable to see it slipping into mid-2021,’” stated brokerage JP Morgan Securities (Asia Pacific) Ltd, recounting comments by Galaxy Entertainment’s management.
The casino group has for some months in official documents been referring to a “first-half 2021” launch for Phase 3, but had on occasion given guidance verbally of hopes for an “early 2021” opening.
JP Morgan had been “modelling” for a “third-quarter 2021″ launch “all along,” said analysts DS Kim, Derek Choi and Jeremy An in a Thursday note.
Galaxy Macau Phase 3 has faced a number of headwinds this year, including labour-supply disruption due to the Covid-19 pandemic. There was also a local-government-mandated suspension of activity at a worksite for Phase 3 expansion, pending an investigation, after three people died and four were injured in an incident there in late March. The pause had still been in place in late April.
The institution said Galaxy Entertainment was still giving guidance for a HKD50-billion (US6.45-billion) aggregate budget for Galaxy Macau Phase 3 and Phase 4.
“There’s still no comment on the split, but our guess is about HKD15 billion for Phase 3 and approximately HKD35 billion for Phase 4,” stated the JP Morgan team.
“That said, Galaxy continues to fine-tune its project plan and design with increasing focus on high-end and larger units; the number of rooms is expected to be 3,500 (old: about 4,000), with the split likely at 1,400 to 1,500 [rooms] for Phase 3 and 1,900 to 2,000 for Phase 4,” added the brokerage.
Galaxy Entertainment has said Phase 3 will also have casino space; a large-scale arena with 16,000 seats; and 400,000 square feet (37,161 sq metres) of meetings incentives, conferences and exhibitions (MICE) space. An Andaz hotel – a brand of Hyatt Hotels Corp – will also be featured in Phase 3.
Macau EBITDA outlook, Japan
JP Morgan stated: “…we believe Galaxy still offers the most clear-cut growth pipeline, with its Galaxy Macau Phase 3 and 4 projects that will double its capacity (hotel, gross floor area, gaming area, etc), allowing it to get the ‘last bite of apple’ as Macau’s final projects under the current concession,” cycle, which ends in June 2022.
“We forecast these projects can lift the group’s earnings before interest, taxation, depreciation and amortisation (EBITDA) by 50 percent when ramped-up (by 2023 or so), conservatively speaking,” the JP Morgan team further noted.
The institution – along with Sanford C. Bernstein Ltd and Jefferies Hong Kong Ltd – noted in respective commentary that Galaxy Entertainment remained committed to pursuing the right to a casino project in Japan, despite having withdrawn from contention in the metropolis of Osaka.
The firm’s Macau market rival Las Vegas Sands Corp, the parent of Sands China Ltd, had announced on Tuesday that it would not pursue a Japan licence. It had been looking at Yokohama – where more lately Galaxy Entertainment has also focused its efforts – and Tokyo, although the capital has not yet flagged any wish to be in the reckoning.
The three brokerages have noted that Galaxy Entertainment had healthy cash reserves.
“Galaxy has…net cash at HKD47.5 billion and debt at HKD4.4 billion which is related to the treasury management programme. Galaxy also has HKD13 billion in revolver [credit facility] that it could tap if needed,” Sanford Bernstein analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu wrote in a Wednesday memo.
As well as being conservative with cash, the gaming operator had been “less bullish” than its peers in terms of gaming-sector recovery after Covid-19, remarked Jefferies analyst Andrew Lee in a Wednesday note.
“We sense management is confident the sector will return to normal but this will take time with limited near-term visibility, which is dependent on quarantine policies being relaxed,” Mr Lee wrote.
“Similar to its peers, management expects VIP and premium mass to lead the recovery, which is similar to new property openings,” the Jefferies analyst stated.
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