Galaxy Earnings: Solid Recovery Continues, Special DPS a Nice Surprise

Although Galaxy’s 00027 June-quarter adjusted EBITDA of HKD 2.44 billion was slightly behind Bloomberg consensus, we think performance is positive, continuing to reflect a solid recovery, with revenue and adjusted EBITDA returning to 66% and 57% of pre-COVID 2019 levels, from 54% and 48% in the prior quarter. The special dividend of HKD 0.20 per share is a nice surprise, reflecting management’s confidence in the profit growth outlook. Management also sees strong momentum into the third quarter, with quarter-to-date mass drop volume 20% above the level in 2019. This is impressive, and 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.

We raise our fair value estimate to HKD 52 from HKD 51, after lifting our industry gross gaming revenue, or GGR, estimate to MOP 181 billion, or 62% of 2019 levels, up from 50% in our previous forecast, to reflect a more upbeat 2023 outlook. Accordingly, we raise our 2023 revenue and adjusted EBITDA forecasts for Galaxy by 11% and 16%, to HKD 39.6 billion and HKD 11.8 billion, respectively. Our tweaks to long-term GGR and profit forecasts are minor. The shares are fairly valued as of market close on Aug. 17. We think Galaxy’s premium asset quality and strong project pipeline make it best positioned to capture Macao’s long-term prospects—although in the near term, we prefer Sands China on a mass segment recovery and SJM on its turnaround story.

Galaxy has tackled labor constraints well, with hotel rooms fully opened as of end-June. It has launched its Galaxy Macau Phase 3 progressively from the second quarter, including Raffles Hotel in July, and targets to open Andaz Macau in September, which will add 1,150 rooms, representing a 26% increase in Galaxy’s room capacity. We think this, along with a series of concerts and nongaming events, will help to expand Galaxy’s customer base and attract traffic to the company’s gaming floors.