Galaxy Entertainment Group Ltd

HKEX:27

Earnings Call Transcript 2023-Q1

[Operator]

Thank you for holding, and welcome to the Galaxy Entertainment Group's management update for the first quarter results of 2023. Joining us today are Mr. Ted Chan, Chief Financial Officer; Mr. Roland To, Senior Director of Strategic Planning; and Mr. Peter Caveny, Assistant Senior Vice President of Investor Relations. [Operator Instructions] This meeting is being recorded.

I would now like to pass to Mr. Chan for presentation. Mr. Chan, please go ahead. Thank you.

[Ying Tat Chan, executive]

Thank you, operator. Hello, everyone. Thank you for joining us for the update call on GEG's Q1 2023 results. For those who have not previously met with me, I'm Ted Chan, I'm the Chief Financial Officer of Galaxy Entertainment. I've been active in Macau gaming market over the past 20 years. And for the past 5 years, I've been leading our Japan development team. I'm happy to be back.

Joining me here on today's call is Roland To, Senior Director of Strategic Planning; and Peter Caveny, Assistant Senior Vice President of Investor Relations. Copies of our media release, stock exchange announcement and PowerPoint presentation are available on our website, which also include our customary disclaimers.

Following the relaxation of COVID-related travel restrictions in early January, Macau has experienced a rapid rebound in visitation and associated revenues. It has been very pleasing to see solid pent-up demand following relaxation of travel restrictions. Visitors arrivals, hotel occupancy, gaming revenue and retail sales have all seen good growth.

For Q1 2023, GEG reported EBITDA of $1.91 billion, up 232% year-on-year and also versus an EBITDA loss of $163 million in Q4 last year. We played lucky in Q1, which increased our EBITDA by $59 million.

Moving into Q2, we continue to see encouraging business performance. Quarter-to-date, the continued recovery has been verified by the performance in April and the May Golden Week. Our grind mass revenue was around 90% of pre-COVID levels. And more importantly, our premium mass already surpassed the 2019's level during the same period. We are encouraged to see the progressive month-to-month recovery in both paid and mass since the border reopened.

In mid-April, we held our first MICE event at the Galaxy International Convention Center. This was followed by the 2 world-class K-pop concerts, TREASURE and BLACKPINK, hosted in this 16,000-seat Galaxy Arena. The feedback on the event and quality of the facility has been outstanding.

We are planning to open Raffles at Galaxy Macau later this year where Raffles is positioned to serve our premium customer, and this will be followed by the opening of Andaz Macau in Q4. The 2 new hotels will add additional 1,150 rooms in our Macau portfolio, bringing our total hotel room count close to 6,000.

Looking further forward, we would expect further improvement as more of our existing facilities come online following additional staff recruitment. We now have all full complements of current hotel rooms available. We are opening additional F&B venues and the opening of new amenities such as Galaxy Arena, GICC, Raffles and Andaz, all of which to drive increased visitors numbers across our existing assets. This will be further supported by increased airlift and ferry capacity to Macau, thereby allowing easier and more convenient access for visitors.

We are also proceeding with the construction of Cotai Phase 4, Macau's only next-generation integrated resort, which will complete our ecosystem in Cotai. As you can see, we remain highly confident about the future of Macau as we continue to invest literally billions of dollars into our business. In fact, we invested approximately $1.5 billion during Q1.

Our Cotai development activities, along with our existing property initiatives, also demonstrate our support of Macau during the pandemic by continuing to invest in the economy, providing jobs and supporting local SMEs as well as our long-term commitment to help Macau achieve its vision of becoming a World Centre of Tourism and Leisure.

GEG is more appreciative of the efforts of Macau Government, the broader community and our most supportive team members. Our commitment and belief in the future of Macau is evidenced by our MOP 28.4 billion commitment to Macau under our new 10-year gaming concession.

We also continue to work hard at managing our cost structure. Our Macau OpEx burn rate has declined by 26% from approximately USD 3.4 million per day under the normal operating conditions to $2.5 million range in Q1, which represents a 10% sequential increase over Q4 last year as business rebound during the period and additional staffing recruited. We believe that we will create sustainable operating leverage going forward, where we expect to deliver permanent savings in OpEx with the lower staff headcount compared to 2019 even after the full opening of Galaxy Arena, GICC, Raffles and Andaz.

GEG is in a very fortunate position with a very strong balance sheet. Cash and liquid investments increased from $26.4 billion at the end of December of 2022 to $28.7 billion as at end of March. Total debt remained virtually unchanged at $7.4 billion, which primarily reflects our treasury yield enhancement initiative. Our core debt remained minimal at $0.4 billion, which includes 0 debt associated with our Macau operations.

That concludes my prepared remarks. Operator, please begin with the Q&A session.

[Operator]

[Operator Instructions] We will now take our first question from Ronald Leung from Bank of America.

[Ronald Leung, analyst]

I have 2 questions. First of all, is it possible to share around the rough EBITDA run rate quarter-to-date? This is the first question.

The second question is that after Phase 3 and 4 are fully rolled out, does management have any expectations for the market share potential for Galaxy longer term?

[Ying Tat Chan, executive]

Ronald, thank you very much for the questions. Quarter-to-date, I think we -- the April number is actually very great for the whole market and also we have a very, very positive Golden Week numbers as well. But of course, during that time, we have some volatility in the both VIP and mass.

But quarter-to-date, let me give you some color in terms of our performance in the 2 properties. For instance, in Galaxy Macau, we -- the margins already bypassed 100% of the 2019 number quarter-to-date, whereby StarWorld is around 70% at the moment. Retail sales are basically double -- more than double our 2019's number. And also our rolling volume is actually more than or close to -- more than 20% of the 2019 numbers. So I think we are quite positive about that.

[Peter J. Caveny, executive]

Market share?

[Ying Tat Chan, executive]

About the market share, I think in terms of what we're looking at market share, I think we are quite in line with the market at the moment. But going forward, with the new opening of our new properties, Raffles and Andaz, we are looking at a faster growth.

[Operator]

[Operator Instructions] Now our next question comes from Simon Cheung from Goldman Sachs.

[Simon Cheung, analyst]

Good results. I have 2 questions as well. Earlier, you mentioned that you -- that premium mass had exceeded 100% and grind mass is running at about 90%. Would you be able to share with us your GGR breakdown between the 2 segments year-to-date or maybe the trend that you have seen actually in the last month or so? I guess what I'm trying to get at is, have we seen a noticeable improvement on the grind mass? That's the first question.

And the second question is related to junket VIP business. We've been seeing some other casino operator having a handful of junket VIP room at their properties. I remember last time when we spoke, you said that you are still assessing the situation. Wondering whether you have any latest thoughts on that.

[Ying Tat Chan, executive]

Thank you, Simon. In terms of the premium mass and grind mass, we don't break down the details for the public. But in terms of the trend, you see that premium mass is actually moving much, much faster than the mass. And it's also evidenced by when we look at our property visitation is actually still below the 2019 level, which means the premium mass is actually growing faster than the grind mass one.

In terms of the junket operation, we are still waiting for the final approval in terms of the law in the -- related to junkets. We're still evaluating situations. But probably, we will be able to open up our first junket rooms very soon, perhaps in the next month or so. But other than that, there's nothing to update. I think we will continue to evaluate the situation.

Our focus at the moment is really on the premium direct. As I said earlier, our premium direct is doing pretty great. Our number has actually, in terms of volumes, bypassed 2019's number, and we're quite encouraged about that. Thank you.

[Operator]

[Operator Instructions] And we have a question from D. S. Kim from Galaxy (sic) [ JPMorgan ].

[D. S. Kim, analyst]

My first one is regarding our staff count. I think I saw in the press release that we would add 900 jobs additionally, including those needed for Phase 3. And may I confirm if this means our total staff count would only be around 18,000 before Phase 4 opens versus 22,000 back in 2019? I think this feels like a huge efficiency gain. I just wanted to double check. And I have one more follow-up.

[Ying Tat Chan, executive]

Thank you. Thanks for following our numbers very closely. In 900 locals, when we hire additional staff, there's local and also foreigner. And when staff leave, we will also have local and foreigner. And the 900 locals is actually a net number that we've recruited during this [ clear-up ] of the locals.

In terms of total number, you are correct, pre-pandemic, we're close -- we're around 22,000 headcounts at the moment. After all the properties, new properties being opened up, we will be close to 19,000. So it will be more than -- a little more than 10% of permanent savings going forward. And the staff costs represent roughly about 80% of our OpEx. So we can actually easily look at an OpEx savings of more than 10% going forward after all our new facilities had been opened up.

[D. S. Kim, analyst]

Thanks for the clarification. And I think that's amazing efficiency gain. My follow-up is about -- albeit Simon's comment is similar, but regarding VIP, especially StarWorld, I noticed that we haven't had any VIP business for about now 5 quarters. Do we plan to resume VIP business, either premium direct or junkets, in the coming quarters as now volume recover? Or do you want to keep it as a pure mass -- pure premium mass boutique casino for foreseeable future?

[Ying Tat Chan, executive]

StarWorld is an interesting property in Peninsula. And in Peninsula's side, it still represents about 30% of the total GGR in the first quarter. And I think it will sustain the number going forward, and we see some unique opportunity over there.

And if we look at StarWorld, we have a month-on-month great improvement, purely looking on the mass side. I think we'll continue to evaluate the situation. Of course, the issue is we don't have enough suites in StarWorld that we'd love to put more premium direct customer over there. But I think we have to look at the situation going forward and make some decision.

[D. S. Kim, analyst]

Thank you so much for your insight, and congrats on a great quarter and even better second quarter to date.

[Ying Tat Chan, executive]

Thank you.

[Operator]

We will now move to our next question from George Choi from Citi.

[George Choi, analyst]

Given the success that you had with TREASURE and BLACKPINK, I just wonder what would you be doing going forward. I was in Macau just over the weekend, and I saw some advertisement for another K-pop group that you'll be hosting soon. Can we -- if possible, can you share with us a bit more details about that, please?

[Ying Tat Chan, executive]

Okay. So for the -- I'm happy you were there during the past weekend, a very busy weekend. Of course, in terms of going forward, we will -- with the opening of Galaxy Arena, it gave us a big opportunity for us to host more of international events, BLACKPINK and similar. Not limited to Korean K-pop, of course, more international one and also those that our players love.

To give you some color in terms of the performance in the weekend, I would say last past weekend was the best weekend post-COVID week in all metrics, in particular for our retails and slot business. Our retails had a big spike during the concert date. So we continue to look at this opportunity to bringing more shows and also that will benefit a lot of our visitations and business across our properties.

[George Choi, analyst]

And Ted, I think I saw some advertisement on another K-pop group, Super Junior. Is that -- does that [ fit in ] correctly? Or am I seeing something wrong?

[Ying Tat Chan, executive]

That's correct. Thanks for following so closely on that, George. Thank you.

[Operator]

There are currently no more questions in the queue.

[Ying Tat Chan, executive]

Thank you very much, and we'll see you in the next call.

[Operator]

This is the end of GEG's conference call. Thank you for joining us today. You may now disconnect.