Galaxy Earnings: Impressive Results With Strong Market Share Gain; Shares Undervalued

Narrow-moat Galaxy delivered a strong set of second-quarter results, with 7.4% sequential growth in gross gaming revenue, or GGR, compared with the 2% drop in industry GGR, and a nice EBITDA margin expansion of 222 basis points to 29.1% with a 2% cut in operating expense from a quarter ago, despite expanding product and service offerings and the continued ramp-up of Galaxy Macau phase 3. This has led to an impressive GGR market share gain to 18.9% from 17.5% a quarter ago, and a 12.4% sequential growth in adjusted EBITDA to HKD 3.2 billion, which is 4% above Bloomberg consensus. Meanwhile, management is seeing further upticks in the quarter-to-date performance, with visitations rising 30% above the average level in the second quarter. The strong results and positive momentum are in line with our expectations, as the firm’s strategic moves in reconfiguration of gaming floors, and expanding the sales and hosting team, have improved the traffic flow and loyalty of premium mass clients.