GGRAsia – Galaxy says smoking ban, Apac casinos hurt its 1Q in Macau

Galaxy says smoking ban, Apac casinos hurt its 1Q in Macau

May 16, 2019 Newsdesk Latest News, Macau, Top of the deck

Net revenue at Macau casino operator Galaxy Entertainment Group Ltd fell by 7.7 percent in the first quarter. Such revenue was just under HKD13.05 billion (US$1.66 billion) compared to HKD14.13 billion in the prior-year quarter.

The numbers were given in a summary filed with the Hong Kong Stock Exchange on Thursday. The Hong Kong bourse only mandates reporting on a half-year and full-year basis.

The latest numbers were against a high base for the prior year. In the first quarter 2018, Galaxy Entertainment’s revenues had soared 32 percent year-on-year.

Galaxy Entertainment’s first-quarter adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) were down 7.8 percent year-on-year. Such EBITDA was HKD3.98 billion, compared to nearly HKD4.32 billion a year earlier.

A ban from January on tableside smoking in VIP rooms and competition from other casinos in Macau and in the Asia-Pacific (Apac) region, had a negative effect on the first-quarter performance, said Lui Che Woo, chairman and founder of Galaxy Entertainment, in a statement accompanying the selected first-quarter numbers.

“Overall given the prevailing market conditions, I believe the group delivered a solid financial result,” said Mr Lui. “We remain confident in the medium- to longer-term outlook for Macau in general and Galaxy Entertainment specifically given the continued growth in demand for tourism, leisure and travel from mainland China,” he added.

In the first quarter this year, net gaming revenues fell 7.0 percent, to HKD11.09 billion, from HKD11.92 billion.

The firm said: “In the first quarter, gross gaming revenue [GGR] was impacted by the introduction of the full smoking ban and increased competition from both local and regional casinos.”

VIP junket rolling chip turnover – another measure of casino performance and relating to agent-generated play – plummeted 29.5 percent year-on-year in the three months to March 31. Such turnover group-wide was nearly HKD203.57 billion, compared to just above HKD288.79 billion in first-quarter 2018.

“Galaxy reported uninspiring first-quarter results, with lacklustre EBITDA momentum (down 9 percent quarter-on-quarter and 12 percent year-on-year, normalised for luck) and market share losses across segments,” wrote DS Kim and Christopher Tang, analysts at JP Morgan Securities (Asia Pacific) Ltd in a Thursday note.

“This however shouldn’t surprise anyone at this point, as its weak results were well-flagged,” they added.

VIP, mass below market average

Banking group Morgan Stanley had said in an early April note it anticipated that new junket rooms at Galaxy Entertainment’s flagship Cotai property Galaxy Macau would help it gain market share in VIP this year.

The casino group’s first-quarter 2019 mass table “drop” – the amount of cash wagered at mass tables and cash chips purchased at the casino cage for such games – rose by 6.9 percent year-on-year. Such mass “drop” was about HKD30.46 billion, compared to HKD28.51 billion a year earlier.

Macau’s casino regulator said in data released on April, that mass-market GGR city-wide had risen 16.1 percent year-on-year.

Galaxy Entertainment’s electronic gaming volume for the first three months of 2019 was approximately HKD16.18 billion, down 9.3 percent on the nearly HKD17.83 billion achieved in first-quarter 2018.

Government data showed that slot machine GGR Macau-wide – excluding GGR from so-called live multi game machines – in the first quarter was down 2.3 percent.

Galaxy Macau’s first-quarter net revenue was HKD9.26 billion, down 5.9 percent year-on-year and down circa 11 percent quarter-on-quarter. The Cotai property is the primary contributor to Galaxy Entertainment’s revenue and earnings.

The property’s adjusted EBITDA was HKD3.02 billion, down 7.3 percent year-on-year and down circa 12 percent quarter-on-quarter. Adjusted EBITDA margin under Hong Hong Financial Reporting Standards was 33 percent, the same as the prior-year quarter.

The firm said in its commentary on the quarterly numbers: “We continue to progress with the previously announced HKD1.5-billion renovation enhancement programme in both Galaxy Macau and StarWorld Macau. Whilst there has been some disruption, we believe this enhancement programme will make our resorts even more attractive to guests. We anticipate to complete this programme in the early part of 2020.”

The “contribution from Phase 3 will not really be felt until 2021,” said brokerage Sanford C. Bernstein Ltd in a Thursday note on the quarterly results, and referring to the next phase of expansion of Galaxy Macau.

Galaxy Entertainment faced “headwinds in the near/medium term relative to the overall market unless the high-end VIP business returns later this year: long-term capacity expansion with Phases 3-4 is a key value driver,” stated the brokerage’s analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu.

(Updated 8.42am, Friday May 17)