Brokerage Morgan Stanley Asia Ltd has trimmed by 14.5 percent its forecast for 2024 earnings before interest, taxation, depreciation, and amortisation (EBITDA) for Macau casino operator Galaxy Entertainment Group Ltd. It now expects such EBITDA to be just over HKD11.81 billion (US$1.51 billion) this year, down from its previous estimate of HKD13.82 billion.
Analysts Praveen Choudhary and Gareth Leung said in a Tuesday report that the new forecast assumed “lower mass-market share – from 18.7 percent to 17.4 percent – and higher costs”.
Net revenue for Galaxy Entertainment is expected to reach HKD42.26 billion in 2024, down 6.8 percent from a previous estimate, stated the institution.
Morgan Stanley also lowered its 2025 earnings forecast for the casino firm. The brokerage now expects Galaxy Entertainment’s EBITDA and net revenue to be HKD14.41 billion and HKD48.21 billion next year, respectively down 3.6 percent and 1.4 percent from its previous estimate.
“We are now 13-percent below [analysts’] consensus for both 2024 and 2025 EBITDA. We think consensus was assuming share gains after the opening of Phase 3 [of Galaxy Macau casino resort] in the second half of 2023, but these did not materialise,” wrote the Morgan Stanley team.
Galaxy Macau (pictured) is the group’s flagship resort in the city’s Cotai district.
The analysts said they expect Galaxy Entertainment’s mass-market share to have declined to “17.2 percent in first-quarter 2024”.
“We also think consensus [opinion] underestimates the potential operating deleverage as the company increases opex [operating expense] to gain market share and for non-gaming investment,” said Mr Choudhary and Mr Leung.
The brokerage forecasts Galaxy Entertainment’s first-quarter 2024 corporate EBITDA to be HKD2.9 billion, up 2 percent sequentially.
The result would be “weaker” than the industry’s expected “5-percent quarter-on-quarter” growth, it said. “This is driven by mass share loss and operating deleverage.”
Galaxy Entertainment reported adjusted EBITDA of just under HKD2.81 billion for the fourth quarter of 2023, on net revenue that rose 6.9 percent sequentially, to nearly HKD10.32 billion.
The company reported net revenue of HKD35.68 billion for full-year 2023, up 211.0 percent year-on-year. Adjusted EBITDA stood at HKD9.96 billion in 2023.
For the first quarter of this year, Galaxy Entertainment had been flagged in a Citigroup note last week as likely to have lost 0.8 of a percentage point of market share. Citigroup said “negative operating leverage” had in likelihood “hit” Macau operators’ first-quarter EBITDA.
In Tuesday’s report, Morgan Stanley observed that Galaxy Entertainment’s shares on the Hong Kong bourse were trading at a premium compared to its Macau peers.
“We think the premium was due mainly to: net cash position, and expectations of faster growth from Phase 3 and 4,” said the brokerage. “Yet, we think the premium will narrow as peers resume dividends,” it added.
Galaxy Entertainment announced in February a special dividend of HKD0.30 per share, payable on April 26. The group was the only Macau operator to pay a special dividend last year.
But two other Macau casino operators respectively announced in March annual dividends for the first time since the 2019 trading year preceding the Covid-19 pandemic.
Earlier this month, brokerage CLSA Ltd reduced its 2024 estimate for Macau-market casino operator EBITDA by 1.2 percent, to HKD68.63 billion. This was due to the ongoing “competitive landscape” among the city’s six concessionaires, and was “1.8 percent… below consensus,” said the institution.
