Galaxy Entertainment beats the odds with solid results as Macau gaming rebound slows

Macau casinos are on the mend, and Macau casino operators are hitting the jackpot. Benefiting from the recovery is Galaxy Entertainment Group (0027. HK), one of the top players, reporting strong double-digit revenue and profit growth in the first half of the year.

Tourist numbers in the former Portuguese colony rose about 44 percent year-on-year to 16. 72 million in the first half of the year, according to government data, while occupancy rates in the hotel sector rose 6. 1 percentage points to 84 percent. Gaming revenue also surged to 132 billion patacas ($16. 4 billion) in the first seven months of the year, up nearly 37 percent from a year earlier.

Amid the ongoing recovery, Galaxy's first-half revenue rose 37 percent year-on-year to HK$21. 5 billion ($2. 76 billion). Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) likewise increased 37% to HK$6 billion, while profits jumped further by 52% to HK$4. 4 billion. Gaming revenues remained the company's biggest earner, growing 45% year-on-year to nearly HK$20 billion. Revenues from hotels and shopping centers rose 34. 5% to HK$3. 09 billion.

New developments move ahead

Galaxy Entertainment is in the midst of upgrading several older resorts in Macau, as well as one major new project. The StarWorld Hotel is being evaluated for a series of upgrades, and the Capella at Galaxy Macau is undergoing renovations and will offer 100 sky villas and suites when it reopens next year.

Phase IV of Galaxy Macau is also in full swing, covering a total area of ​​approximately 600, 000 square meters and will house a number of hotel brands when completed. The project will also include a 5, 000-seat theatre, a range of restaurants and retail services, and non-gaming facilities such as a water park and an entertainment park. Completion is currently scheduled for 2027.

Galaxy's performance is almost in line with Macau's gaming recovery after the pandemic. All casino pelers are affected by the industry's revenue dynamics, but Galaxy is almost completely synchronized as an overall trend as an industr y-profit leader. Reflecting that, the company's 37 % of the company's 37 % of the company's 37 % of the company matches the growth and pace of gaming profits of the entire Macau in the first seven months this year. In other words, Macau's future profit growth is a powerful material that predicts what will happen to Galaxy in the future.

Falling short of previous highs

After a significant recovery after last year's pandemic, the Macau government expected in 2024 that Macau's gaming revenue would reach 183 billion Pataka last year to 216 billion Pataka. Although the growth for seven months since this year was quite strong, the recent tendency to be monthly has shifted rapidly.

Income is growing yea r-o n-year, but its scale is steadily shrinking. The month increased 79 % yea r-o n-year, but in July only 11. This trend is expected to continue this year, especially because the base effect in the second half of 2023 is a more important factor.

To put it simply, the growth rate in the first half of this year was quite powerful, because the numbers in the same period of the previous year were weak, and China had just escaped from severe pandemic regulations at the time. However, recovery had already begun in the latter half of last year. In other words, it is difficult to exceed the number at that time this year, and the growth rate in the second half of 2024 will be inferior to the first half.

Furthermore, with the city's new gaming regulations, the casino has laid away from the former high roller gaming room, which was one of the former large earnings, and instead focused on the public business. It may be difficult to return to the golden age of 360. 7 billion Pataka in 2013, due to such a drastic change in this situation. It may be difficult to return to 292. 5 billion Pataka, which arrived in 2019 before the pandemic. < SPAN> Galaxy's performance is almost in line with Macau's gaming recovery after pandemic. All casino pelers are affected by the industry's revenue dynamics, but Galaxy is almost completely synchronized as an overall trend as an industr y-profit leader. Reflecting that, the company's 37 % of the company's 37 % of the company's 37 % of the company matches the growth and pace of gaming profits of the entire Macau in the first seven months this year. In other words, Macau's future profit growth is a powerful material that predicts what will happen to Galaxy in the future.

After a significant recovery after last year's pandemic, the Macau government expected in 2024 that Macau's gaming revenue would reach 183 billion Pataka last year to 216 billion Pataka. Although the growth for seven months since this year was quite strong, the recent tendency to be monthly has shifted rapidly.

Government-mandated spending boost

Income is growing yea r-o n-year, but its scale is steadily shrinking. The month increased 79 % yea r-o n-year, but in July only 11. This trend is expected to continue this year, especially because the base effect in the second half of 2023 is a more important factor.

To put it simply, the growth rate in the first half of this year was quite powerful, because the numbers in the same period of the previous year were weak, and China had just escaped from severe pandemic regulations at the time. However, recovery had already begun in the latter half of last year. In other words, it is difficult to exceed the number at that time this year, and the growth rate in the second half of 2024 will be inferior to the first half.

Furthermore, with the city's new gaming regulations, the casino has laid away from the former high roller gaming room, which was one of the former large earnings, and instead focused on the public business. It may be difficult to return to the golden age of 360. 7 billion Pataka in 2013, due to such a drastic change in this situation. It may be difficult to return to 292. 5 billion Pataka, which arrived in 2019 before the pandemic. Galaxy's performance is almost in line with Macau's gaming recovery after the pandemic. All casino pelers are affected by the industry's revenue dynamics, but Galaxy is almost completely synchronized as an overall trend as an industr y-profit leader. Reflecting that, the company's 37 % of the company's 37 % of the company's 37 % of the company matches the growth and pace of gaming profits of the entire Macau in the first seven months this year. In other words, Macau's future profit growth is a powerful material that predicts what will happen to Galaxy in the future.

After a significant recovery after last year's pandemic, the Macau government expected in 2024 that Macau's gaming revenue would reach 183 billion Pataka last year to 216 billion Pataka. Although the growth for seven months since this year was quite strong, the recent tendency to be monthly has shifted rapidly.

Income is growing yea r-o n-year, but its scale is steadily shrinking. The month increased 79 % yea r-o n-year, but in July only 11. This trend is expected to continue this year, especially because the base effect in the second half of 2023 is a more important factor.

To put it simply, the growth rate in the first half of this year was quite powerful, because the numbers in the same period of the previous year were weak, and China had just escaped from severe pandemic regulations at the time. However, recovery had already begun in the latter half of last year. In other words, it is difficult to exceed the number at that time this year, and the growth rate in the second half of 2024 will be inferior to the first half.

Casinos made Macau one of the wealthiest places in the world — but they also brought heightened inequality and crime. Now, China is cracking down.

Furthermore, with the city's new gaming regulations, the casino has laid away from the former high roller gaming room, which was one of the former large earnings, and instead focused on the public business. It may be difficult to return to the golden age of 360. 7 billion Pataka in 2013, due to such a drastic change in this situation. It may be difficult to return to 292. 5 billion Pataka, which arrived in 2019 before the pandemic.

In a media interview earlier this year, Galaxy Vice Chairman Francis Lui was matter-of-fact when asked when Macau gambling revenues would return to 2019 levels. He simply replied that everything needed to be put in a new perspective because the relative revenue distribution between high-roller gaming rooms and the main gaming floors of casinos had changed. Such remarks hinted at the new reality: gaming revenues may never return to their previous highs, with the decline in high-roller business.

Galaxy and its peers are under pressure from the government to further increase new investments while moving ahead with new projects already in the pipeline. In the government's new license agreement, the six companies agreed to an additional 20% increase in their total annual investments if Macau's total annual gaming revenues exceed MOP180 billion between 2023 and 2027. Macau's gaming revenues of MOP183. 1 billion last year already exceeded this level.

Lui also said that Galaxy has received notice from the Macau government that it needs to increase its investment this year, and the company plans to make part of the new investment through the purchase of new facilities and the upgrade and maintenance of existing facilities. The additional investment will be in non-gaming projects and may not generate revenue or returns. As such, new additional investments without immediate significant returns may inflate the company's expenses. The request to increase spending by 20% is no small additional burden and will certainly eat into the overall performance of Galaxy and its rivals. Galaxy's price-to-earnings ratio is currently 16. 4 times, making it an investor favorite in the sector. This multiple is slightly higher than Sands China's (1928. HK) 15 times, higher than Wynn Macau's (1128. HK) 10. 5 times and MGM China's (2282. HK) 9 times. Following the latest earnings release, most investment banks did not adjust their ratings on the stock, but many did lower their target prices. Goldman Sachs lowered its target price to HK$51. 90 from HK$52. 40, while Macquarie lowered its target price to HK$56. 80 from HK$57. 40. CITIC Lyon lowered its target price by another 20% to HK$40 from HK$50. 20.

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Macau's entire success has been built on casinos. But under Beijing's regulatory crackdown, gamblers must abide by new rules or risk losing their licenses.

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"Gaming is 70-80% of Macau's GDP. It's shockingly high," said Alidad Tash, who runs the consultancy 2NT8 Macau. Nikada / Getty Images

Raini Hamdi

2021-11-18T07:16:22Z

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Macau is 32 square kilometers, just 5% of Singapore's land area and about half the size of Manhattan. But it has more than 35, 000 hotel rooms, 30 Michelin-starred restaurants, and 25 UNESCO World Heritage sites. And it has six times the gaming revenue of the Las Vegas Strip.

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Aridad Tash is a gaming operations and strategy expert who worked for Sands Corporation in Las Vegas and Macau for 10 years. He said that in 2019, before the pandemic, Macau's gaming revenue was $36 billion, while the Las Vegas Strip's revenue was only $6 billion.

More money, but not for everyone

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"Gaming is 70-80% of Macau's GDP. Gaming is 70-80% of Macau's GDP, which is shockingly high," says Tash, who now runs consultancy 2NT8 Macau.

But that wealth is in the hands of a few, which is at odds with the government's message of "mutual prosperity." In September, the government announced a regulatory overhaul. Macau's gaming licenses will expire in June 2022.

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Boosting Macau's non-gaming elements will be a tall order, according to casino development strategists and hospitality consultants interviewed by Insider. One reason is that Macau is small. But mainly, Macau is a victim of its success in making gaming its sole source of cash revenue.

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Macau is a victim of its success in making gaming its sole source of cash revenue. Tibor Bogner / Getty Images

Victoria Foo is vice president of the Macau Meetings, Incentives and Special Events Association. She told Insider that when she came to Macau 16 years ago, most meeting planners didn't know where Macau was. Today, Macau is on the list of international conference destinations, and is held all over the world.

"Every year, new hotels and attractions are added to Macau, so it's always fresh for our clients," Foo said.

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The casinos brought in big money. Macau is the only place in China where gambling is legal, and the casinos have been going strong for 20 years.

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"Macau's GDP per capita has soared from a low of $12, 352 in 1992 to $71, 974 in 2020," says Ben Lee, managing partner at IGamiX Management & amp; Consulting. "But most of that wealth is concentrated in the hands of a few.

There's a lot of money in Macau, but there's also extreme wealth inequality.

Save article icon Bookmark Li, who has lived in Macau for 16 years, told Insider that the annual lump sum is "nominal."

One-trick pony

"China has seen how this has caused social problems in Hong Kong and probably wants to avoid the same outcome in Macau," Li added.

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Without such subsidies and welfare transfers, Macau's Gini coefficient (used to measure inequality) would have recorded high inequality, at 0. 4% in 2017-2018, according to a 2020 Statistics and Census Bureau survey reported by Macau Business.

And while the government reports a low poverty rate of 2. 3% in 2017, the rate is based only on income and ignores the rising cost of living that has accompanied the casino boom.

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Other social issues include a steady stream of young people dropping out of school to work in the gaming industry for financial rewards, according to Robert van der Mas, director of APAC Hospitality Services Macau. This has affected small retailers and restaurants, many of which have disappeared because they cannot compete with the wages offered at casino resorts.

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"If the casinos make money, no one else makes money," says Tash. leungchopan / Getty Images

Macau is well-positioned for tourism: It has the huge mainland market at its feet and neighboring Hong Kong, which together accounted for 90% of Macau's 39 million arrivals in 2019, pre-pandemic, according to the Macau Statistics and Census Service (known locally as DSEC).

Keeping Macau relevant

According to DSEC figures, in 2019, Macau had 60 times as many tourists as locals. But the average stay in Macau was just 1. 2 days, compared with 2. 7 days in Singapore and 3. 3 days in Hong Kong. That's partly due to a high number of day-trippers, who accounted for 53% of arrivals in 2019, DSEC data showed.

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“Instead, Macau became the center of gambling in China,” Lee says. “Despite the campaign to combat corruption [in 2012] and a number of subsequent ant i-a - a-a - a-a - a-a - a-aids, casino no n-game incomes have not reached significant volumes, remaining on average at about 5 % of the gross income.”

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According to experts surveyed, this is comparable to 50 % in Las Vegas and 30 % in Singapore.

However, no n-aggregate activity creates more jobs than gambling, and brings more benefits to small and medium suppliers, some experts say.

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Macau is faced with growing competition for Asian clients as the gambling industry develops in other countries, such as Japan, South Korea and the Philippines. Jui-Chi Chan / Getty images

Since the validity of gambling licenses expires after eight months, Macau had a chance to rethink his game history.

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Attempts at moving beyond gaming

“This is not an extension, this is a new open tender, and anyone can apply for a new concession,” Lee said. According to him, the government will most likely offer prescribed conditions and require clear plans to develop no n-game business, which are not limited to restaurants and retail trade.

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Insider が 取材 し た 観光 家 の 中 に は 、 ノンゲーミング へ の シフト は マカオ にとって プラス に なる 話す 人 も い た。 旅行 に 合わせ て を 再 再 する チャンス と 人 人 も。。。。。。。。。。。。。。。。。。。 AH

APAC Hospitality Services の van der mass 氏 は 、 2007 年 に に グランド ・ を オープン オープン た。 彼 は 、 この 数年 、 中国人 旅行 者 文化 や 食事 売 、 で 体験 に対する 行動 が 「「 変化 大きく 変化 変化 変化 変化 変化 変化 大きく 変化 変化 変化 変化 変化 変化 HIP 」し て いる こと 気づい た と 語っ た。

広告

「統合 型 リゾート は 、 ここ アジア 提供 する サービス を 適応 さ せる 必要 に 迫ら て いる。 これら の セグメント を さ さ こと なく より の 小売 店 や 会議 施設 を 建設" 」と ヴァン ・ デア マス 氏 は 語っ た。

マカオ は 、 日本 、 韓国 フィリピン など の 他 の で ゲーミング 産業 が 発展 する につれ て アジア の 顧客 をめぐる 競争 の 激化 直面 し。 いる いる。 いる いる いる HI

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A thinly veiled power play

Macau's casino owner seems to be listening to the promotion of no n-gaming.

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Sands runs two casino resorts in Macau: The Venetian and The Parisians. The Venetian is the largest casino floor in Asia. Sands is also trying to attract leisure guests in attractions such as the Venice canal and the Eiffel Tower replica. Sands is currently renovating the former Sands Kotai Central into a new resort called "The Londonner," and one of the London Landmark replicas, such as the Diet and Big Ben, and one of the four hotel towers. Beckham is planning to set up a suite with a London theme.

Sands is renovating the old Sands Cotai Central to a new resort called The Londoner, with a London landmark replica. Providing Sheraton Macau Hotel Marketing

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This movement reflects the diversification from the game, but does not deal with the other factor that lacks the development of Macau: Macau's Euro Asia's history and heritage.

According to Leonardo Dioko, a professor at the Macau Tourism Institute and the director of the Macau Tourism Research Center, "Gaming has dropped the shadow of other potential attractions and tangible intangible Euro Asia. I have crushed some of Macau's original character. "

Macau revenues contnue to rse

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Some skeptical people have a strong pressure for China to control the regulations to control the outflow of the RMB and to apply to Macau and the casinos to adopt a trackable digital currency. I think it's a play.

"It is not a coincidence that China's digital RMB's goal is 2024. China just wants to make Macau transform into a digital currency when China wants," he said to clients in the hospitality and real estate industry. According to Tsutomu Hirasawa, the founder of BH21, who advises project development in Asia.

• The timing of this review may be convenient for China, but it is a retreat for Macau sightseeing hit by pandemic. According to DSEC, Macau had 6 million immigrants in January to September 2021, one of the 39 million immigrants in 2019.
• According to Macau's Sheraton Grand and St. Regis, Janet McNab, "Over the past year, the light of hope was visible and the trip was recovering, but it was somewhat near or locally trendy. And it changes quickly. "
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• After all, the end of the crisis is the whole infrastructure that has been inequo but Macau's success. It is also a matter of whether the niche, which was opened as an Asian gambling heaven 20 years ago, will continue to exist.
• "Macau is like a gaming, but" but now that gambling options are increasing around the world, Chinese people may be gambling in Vietnam, Cambodia, Singapore, and Philippines. However, the timing of this review may be convenient for China, but according to DSEC, Macau is 6 million. It was a minute of the number of 39 million immigrants in 2019.
• According to Macau's Sheraton Grand and St. Regis, Janet McNab, "Over the past year, the light of hope was visible and the trip was recovering, but it was somewhat near or local. And it changes quickly. "
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Key Characteristics

After all, the end of the crisis is the whole infrastructure that has been inequo but Macau's success. It is also a matter of whether the niche, which was opened as an Asian gambling heaven 20 years ago, will continue to exist.

"Macau is like a gaming, but" but now that gambling options are increasing around the world, Chinese people may be gambling in Vietnam, Cambodia, Singapore, and Philippines. However, the timing of this review may be convenient for China, but according to the DSEC that was hit by the pandemic, the number of immigrants in Macau was 6 million. It was a minute of the number of 39 million immigrants in 2019.

According to Macau's Sheraton Grand and St. Regis, Janet McNab, "Over the past year, the light of hope was visible and the trip was recovering, but it was somewhat near or local. And it changes quickly. "

Macau

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After all, the end of the crisis is the whole infrastructure that has been inequo but Macau's success. It is also a matter of whether the niche, which was opened as an Asian gambling heaven 20 years ago, will continue to exist.

"Macau is like a gaming, but" but now that gambling options are increasing around the world, Chinese people may be gambling in Vietnam, Cambodia, Singapore, and Philippines. 。

Key Characteristics

The Hong Kong economy contracted by 3. 5% in 2022, mainly due to the effects of COVID-19 restrictions and outbreaks in Hong Kong and mainland China, and general interest rate increases. These challenges were compounded by short-term factors such as the outflow of 2% of Hong Kong's workforce in 2022, structural factors such as an aging population, and limited inflow of foreign workers. Despite the global economic slowdown, Hong Kong recovered through the second quarter of 2023, with real GDP growth reaching 1. 5%. Rising tourist numbers and a surge in private consumption supported this growth. Overall, Hong Kong's financial system remains resilient, and the Hong Kong government continues to promote Hong Kong's role as an international financial center. Hong Kong has a separate legal jurisdiction from China in many respects, maintains a separate currency, and has a separate regulatory structure overseeing companies operating in Hong Kong. However, as noted in the State Department's 2023 Hong Kong Policy Act report, China's imposition of the National Security Law (NSL) on Hong Kong in June 2020 has created a structural change that significantly reduces Hong Kong's autonomy. Under the Hong Kong Policy Act, the Secretary of State has found that Hong Kong will not be treated under U. S. law in the same manner as U. S. law applied to Hong Kong before July 1, 1997. Business risks and rule of law risks that were previously limited to MIT are now limited to Hong Kong.

According to Hong Kong government statistics, there were 1, 258 subsidiaries of U. S. parent companies in Hong Kong in 2022, making the United States the third largest in terms of the number of international subsidiaries in Hong Kong. Of these U. S. companies, 670 are regional headquarters or regional offices.

Hong Kong's key features include an open trade and investment environment, geographical proximity to Asian markets, and attractiveness as a tourist destination.

• Population 7, 472, 600 (end of 2022)
• Visitors 604, 564 (2022)
• Total GDP US$354. 9 billion (2022)
• GDP per capita US$48, 306 (2022)
• Real GDP growth: -3. 5% (2022)

Trade-to-GDP ratio: 384% (2022)

US exports US$26. 5 billion (2022)

Political Environment

Hong Kong is a Special Administrative Region (SAR) of the People's Republic of China (PRC). There are numerous business opportunities, given Hong Kong's professional services talent base, sophisticated infrastructure, and access to manufacturing bases in mainland China. It is also known for its advanced infrastructure, unrestricted inward and outward investment, no foreign exchange restrictions, no nationality restrictions on ownership of companies or sectors, and a simple, low-tax system.