Galaxy Earnings: Solid Recovery Underway; Galaxy Macau 3 Likely To Accelerate Sales Growth

In line with its Macao peers, narrow-moat Galaxy 00027 witnessed a solid recovery in the first quarter, with revenue and adjusted EBITDA reaching 54% and 48%, respectively, of 2019 levels, despite fewer available rooms from the ongoing labor shortage. Management also indicated improving momentum into the second quarter, with the premium mass drop volume surpassing the level in 2019, and retail sales more than doubling. The decent performance is within our expectation. We think the launch of the Galaxy Macau Phase 3 project, along with continued recovery in transportation capacity, will further accelerate Galaxy’s sales growth in coming quarters. We maintain both our profit forecasts and fair value estimate of HKD 51 per share for Galaxy, and we think the shares are fairly valued as of market close on May 22.

Galaxy has launched its Galaxy Macau Phase 3 progressively from the second quarter, with its first meetings, incentives, conferences and exhibitions event in April 2023, followed by two world-class K-pop concerts, including the highly popular Blackpink world tour. Although these nongaming facilities may not bring significant profits to Galaxy, we believe they could help expand Galaxy’s customer base with diversified offerings and attract traffic to the company’s gaming floors. Management indicated strong sales in all metrics during the event dates, particularly retail sales and slot business.

Galaxy also plans to open two hotels this year, the Raffles at Galaxy Macau and the Andaz Macau, which will bring an additional 1,150 rooms. Together with the upcoming Galaxy Macau Phase 4, these new projects will add a total of 3,000 hotel rooms and villas to Galaxy’s room capacity. We estimate its market share, based on hotel room capacity, will rise to 17.4% at the end of 2023 from 15.6% in 2022, and reach 22% after launching Galaxy Macau Phase 4, which will help retain the company’s long-term market share in the gaming business.