ORD Daily Insight

Galaxy Entertainment posted 1H17 revenue of HK$28.5bn (+12% YoY), Ebitda of HK$6.5bn (+37%YoY) and net profit of HK$4.6bn (+81% YoY), beating expectations. For 2Q17, the companyrecorded growth in VIP gross gaming revenue (GGR) of 17.9% YoY, vs mass GGR growth of 16.8%YoY and an 11.7% YoY growth in non-gaming revenue. Its main property, Galaxy Macau,maintained its strong growth trend, with a 34% YoY increase in Ebitda, while its peninsular Macauproperties saw Ebitda rise 62% YoY. We raise our EPS forecasts from HK$1.70 to HK$2.11 in 17E(+44.3% YoY), from HK$1.80 to HK$2.27 in 18E (+8.5% YoY) and from HK$2.00 to HK$2.50 in19E (+11.4% YoY). We raise our target price from HK$50.74 to HK$58.90 and maintain our BUYrecommendation.

    Lucky streak. In 2Q17, the company’s VIP market share increased 2ppts QoQ to 19% and its massgaming market share gained 3ppts QoQ to 21%. Meanwhile, Galaxy recorded a higher win rate,boosting Ebitda by c.HK$20m. Despite increasing competition with four new properties opening inthe past two years, Galaxy has gained market share and we expect the company will continue thistrend amid a more stable competitive environment in coming years.

    Strong properties. Galaxy Macau remains the company’s most important property, with Ebitda up34.4% YoY to HK$2.5bn in 2Q17, contributing 78% of firmwide Ebitda and recording a 25.4%Ebitda margin (+4.4ppt YoY, flat QoQ). We note an obvious improvement in the StarWorldproperty’s performance, with a 42.8% YoY increase in VIP GGR and a 24.9% YoY increase in massGGR, resulting in a 61.5% YoY increase in Ebitda to HK$751m and an uptick in Ebitda margin of3.4ppts YoY to 20.8%. We raise our forecasts for contribution from both properties, particularlyStarWorld’s given its faster-than-expected growth.

    Strict cost control. Galaxy’s greater focus on mass gaming business helped improve its profitability.

    In addition, its cost control are obvious as net margin increased from 10.0% in 1H16 to 16.2% in1H17, and Ebitda margin increased 4ppts YoY to 24% (flat QoQ). Operating expenses declined from11-12% of revenue to around 8.7% within Galaxy Macau and declined from around 15% of revenueto 11.1% of revenue in StarWorld. Commission and allowances, employee benefit expenses andother operating expenses all declined around 1ppt as a proportion of total revenue.

    Maintain BUY. Considering the company’s strong competitiveness and the recovering market, wefrom HK$1.70 to HK$2.11 in 17E (+44.3% YoY), from HK$1.80 to HK$2.27 in 18E (+8.5%YoY) and from HK$2.00 to HK$2.50 in 19E (+11.4% YoY). The company announced a specialdividend of HK$0.33 per share, representing a 30.5% dividend payout ratio. We raise our targetprice from HK$50.74 to HK$58.90 and maintain our BUY recommendation. We also believe theimpact of Typhoon Hato is temporary.