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Earnings Call Analysis
Q2-2024 Analysis
Galaxy Entertainment Group Ltd
Galaxy Entertainment Group (GEG) showcased significant growth in both revenue and EBITDA during the second quarter of 2024. The company reported revenue of $10.9 billion, up 26% year-on-year (YoY) and 3% quarter-on-quarter (QoQ). Additionally, adjusted EBITDA rose 28% YoY and 12% QoQ to $3.2 billion. Despite playing slightly unlucky, which decreased adjusted EBITDA by $20 million, these figures reflect the strong performance and effective strategies that GEG employed throughout the quarter.
GEG declared an interim dividend of $0.50 per share, indicating confidence in Macau’s market and the company’s future performance. This dividend reflects GEG's commitment to returning capital to shareholders. The company boasts a robust balance sheet with a net cash position of $25.2 billion as of Q2 2024. This strong financial footing allows GEG to undertake significant capital expenditures while maintaining shareholder rewards.
One of the standout metrics from the report was the group’s Mass revenue, which reached 114% of 2019’s levels, showing significant recovery and growth beyond pre-pandemic figures. At Galaxy Macau, the Mass business performed exceptionally well, achieving 137% of 2019’s level, while StarWorld reached approximately 75%. This shift highlights the company’s effective transition towards a mass-centric business model, capturing a larger share of the gaming market.
GEG completed the reconfiguration of the Galaxy Macau casino floor before the Chinese New Year, which led to improved efficiency and customer flow. Furthermore, the introduction of new side bet games has increased table game hold, contributing to market share gains. The company also announced advancements in smart table technology, with full coverage expected by year-end at Galaxy Macau. These changes are designed to enhance the gaming experience and attract higher-value customers.
GEG is investing heavily in its properties to ensure long-term growth and competitiveness. Phase 4 development at Galaxy Macau is progressing smoothly, with a focus on nongaming entertainment, family facilities, and a new casino, set to be complete by 2027. Additionally, the Capella at Galaxy Macau is expected to open in mid-2025, offering ultra-luxury accommodations. These expansions are part of GEG's strategic goal to provide a comprehensive lifestyle and entertainment experience, catering to a broader audience.
GEG reported significant improvements in visitor numbers, particularly at Galaxy Macau, where visitation increased by 30% in Q3 compared to Q2’s average. August alone saw a 50% rise from Q2’s average, partly due to attractive events and entertainment offerings at Galaxy Arena. The company’s focus on hosting relevant and targeted events has successfully improved both gaming and nongaming customer spend.
GEG has maintained disciplined cost control. Despite an increase in staff costs, total operating expenses in Q2 were 2% below Q1 levels. The headcount remains stable at around 20,000 people, similar to 2019 levels, with staff costs representing 75% of total operating expenses. Continued efficiency measures are expected to sustain low operating costs while supporting revenue growth.
Looking forward, GEG remains optimistic about Macau’s market, particularly with the expansions and improvements in infrastructure and visa policies that make the city more accessible. The company’s strategic initiatives and substantial investments in property upgrades and technological enhancements are designed to attract valuable customers and drive long-term growth. With a strong financial position, GEG is well-placed to continue delivering value to its shareholders and capturing a larger market share.
Thank you for holding, and welcome to the Galaxy Entertainment Group's Management Update for the Q2 and Interim Results of 2024. 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]
I would now like to pass to Mr. Chan for the presentation. Mr. Chan. Please go ahead. Thank you.
Thank you. Thank you, operator. Hello, everyone, and thank you for joining us for the update call on GEG's Q2 and first half 2024 results. Today, I'm joined by Peter Caveny and Roland To.
Copies of the media release, stock exchange announcement and PowerPoint presentation are available on our website, which also includes our customary disclaimers.
During Q2 2024, the Central Government continued to support Macau's development by expanding the IVS to 59 cities with a total population of approximately 500 million people. Moreover, the Central Government also relaxed visa requirements to allow multiple entries into Macau for group tour visitors from Hengqin and for people from various sectors. This makes Macau even more accessible for Mainland Chinese visitors.
At Galaxy Macau, the casino floor reconfiguration was completed prior to Chinese New Year and we have seen improvement in business and foot traffic across the floor, which helped to improve our efficiency and traffic flow tremendously.
On the Peninsula, at StarWorld, we continued to evaluate a range of major transformation that includes upgrading our main gaming floor, enriching F&B options and other nongaming amenities.
For Q2 2024, GEG's reported revenue of $10.9 billion, up 26% year-on-year and 3% quarter-on-quarter. Adjusted EBITDA was $3.2 billion, up 28% year-on-year and 12% quarter-on-quarter. We played slightly unlucky in Q2, which decreased our adjusted EBITDA by $20 million.
Our balance sheet remained robust and liquid with a net cash of $25.2 billion as of Q2 2024.
We announced an interim dividend of $0.50 per share. This dividend reflects our strong confidence in Macau market, GEG's future performance and our commitment to returning capital to shareholders.
In Q2, the group's Mass revenue was 114% of 2019's levels compared to 107% in Q4 last year and 105% in Q1 this year. In Q2, Galaxy Macau's Mass business performed well, achieving 134 -- 137% of 2019's level, while StarWorld's was approximately 75%.
We continued to refine and upgrade our resorts to make them even more attractive. We focus on providing a high-quality gaming experience to attract valuable customers. Our strategic initiative is aimed to enhance guest satisfaction and drive long-term growth.
We are glad to share the preparation to implement smart tables into our casino are well advanced. We successfully completed live back-of-house pilot testing of smart tables. And in early July, we commenced the installation of smart tables in Galaxy Macau's gaming floor. We anticipate to have the full coverage of smart tables in the casino by year-end.
On the development front, we continued to move forward with the fitting out of Capella at Galaxy Macau and it is targeted to open in mid-2025, offering approximately 100 ultra-luxury sky villas and suites, which will elevate the standard of luxury hospitality in Macau and help to grow an even higher value customer. Phase 4 development is progressing smoothly and will further increase our capacity. Phase 4 focus is on nongaming entertainment, family facilities and also a casino. GEG is committed to capturing and expanding Asian market that feeds a more encompassing lifestyle and entertainment experience. We are on set to complete Phase 4 in 2027.
We firmly believe in competing on quality and service, not on price. We believe that additions and upgrades to our resorts, the expansion of our sales host team and the introduction of smart table technology will assist us in growing and recapturing more businesses.
We continued to work hard in managing our costs. Our current staff number is approximately 20,000 people, similar to the count from 2019's level. Currently, staff costs represent around 75% of our OpEx.
And we remain disciplined in cost control. In Q2, total OpEx was 2% below Q1 and the staff cost was up a marginal 1% quarter-on-quarter only.
Total CapEx for the quarter will be HKD 1.1 billion, in which we invest approximately $700 million into the development of Phase 3 and 4, taking our cumulative investment to date to $31 billion in the combined Phase 3 and 4.
We believe the many additional facilities that we have added and will continue to add in the future will build a resilient foundation for our sustainable long-term growth.
And lastly, to support the Macau government's goal in expanding international visitors to Macau, we have opened overseas offices in Tokyo, Seoul and Bangkok and we'll continue a series of activities to promote Macau.
That concludes my prepared remarks. Operator, please begin the Q&A session.
[Operator Instructions] And our first question comes from D.S. Kim from JPMorgan.
Congrats on a strong print, and thank you so much for finally upping dividend payout and holding it regular, I think, generally for the first time in 10 years. So congrats on that, and a few quick questions.
First, how shall think about dividend policy going forward? I mean, I guess, it will be subject to the Board? But shall we assume or have this 50% payout as a baseline expectation go forward? Or is it more like you look at free cash flow and also an absolute level of dividend EPS at $0.50 every half year? So the rationale or policy explanation would be appreciated.
And my second question is regarding our market share, which, by the way, was fantastic in 2Q. Can you share with us how much share we have had in July? Already industry data is out. Some third-party data suggest that we may have had over 19% share. So edging up nicely again from 2Q level, but I'm wondering if you could share some of these figures in July and also how we should think about this uptrend in market share into second half?
Okay. Great. Thank you, D.S. Thank you all the questions. I think we are very excited to announce our dividend. And also, this is not a set sort of a regular dividend. We don't change our policy, but we definitely would review on a half yearly basis according to the situation.
If you look at our balance sheet in the last 12 months, we generated more than $11 billion in terms of EBITDA. And if we look at all CapEx requirements in the last 12 months, we generated a very good free cash flow. So I think we look at the free cash flow generates an opportunity and result as well as net profit levels.
And I think we are quite confident of this level and we should continue to look at this level going forward. But this is not an absolute guideline. We review, of course, on a [ half year ] basis.
I hope that this will give our investors more confidence, which we think we are confident in ourselves -- our future and Macau as well.
Taking your second question in terms of the market share. We are very happy to see that over the last 2 quarters, we announced in the first quarter, late part of first quarter, that we have a couple of initiatives, including the expansion of our sales host team, making sure our ratio of -- sales and customers ratio are healthy and creating a lot of stickiness of premium mass customers as well as adjusting our targeted reinvestment into right segment of our customer database.
It looks like that the initiative we put in place in the last few months are bearing fruit. And I'm also happy to see -- even though July the market overall is a bit slow in the first 2, 3 weeks' time, but the momentum is picking up in later part of July. The summer holiday may be started later this time in China and the momentum is actually getting later in July. But the momentum is getting better and better, and we are so happy to see our number in August actually also improve.
Just to give you a little bit color on the visitation on, for instance, in Galaxy Macau. Our quarter-to-date, in Q3, our visitation actually grew roughly above 30% compared to Q2 average. And in August, our number perhaps aided by a lot of our concerts, our events in the property in the last 2 weeks' time, the August's visitation is actually 50% more than Q2's average. So we're quite encouraged.
In terms of market share, I'd like to say that in July, we are above Q2 number. We are sustained on the Q2 -- we are sustained to above Q2's market share. And the market share rate is actually accelerated in August to date, which is a bit early to say so in the whole month, but in the last 2 weeks, the number is fantastic. So we see some improvement as well in August.
Thank you so much, sir, for those things. And like visitation number you shared is really impressive. And I also just upgraded the stock to overweight, I'm happy to hear that things are going even better in August.
If I may follow up on one thing is, as you all here said, our investment or refinement of the businesses in premium mass have -- bearing fruit already. But if I may ask when you look at reinvestment rates based on contract revenue, it actually went up a little bit or somewhat meaningfully quarter-over-quarter and -- which is fine because we gained shares and made more money. But I'm just curious if you could comment on these trends into second half, i.e., shall we view this level as a new run rate? Or is it a start of a new trend and -- like uptrend? As we gain market share, we may be a little more generous or spend a little more on the investment.
Sure. Sure, no problem. I think let me just clarify. I know you guys don't like it, but our philosophy in reinvestment in -- right into the customer on a monthly basis, we don't really track like this. It's really about a pocket of reinvestment dollars or amenities that allow our sales team to spend on to our customer, all into the customer spend.
In other words, I think I mentioned it the last time in our earnings call that the low to high range between the last 2 quarters was within 150 basis points and I think we are disciplined in that principle. And I'm happy to say that even though we had a slight increase in Q2, in general, we're still within the 150 basis point range in terms of high and low among different months. So you appreciate that every month, we have a different investment rate according to different customers, different segments and that is the range that we have.
And I'm also quite happy to see that our team, especially our sales host team, are so disciplined in also managing the portfolio of the customer accordingly in the last few months and resulting in such amazing results recently.
I think in terms of the general market competition, number one, I must acknowledge that the market is always intense in the last 10, 20 years and especially in the last few quarters. But I must also sense that the competition is actually stabilized in terms of tracing the top line. I think it comes to realization that, I think, every one of us believe that EBITDA and EBIT margin is also important. So even with a higher reinvestment rate, I think it seems like the market has stabilized in terms of competitions.
Our next question comes from Angus Chan from UBS AG.
And I'll add my congratulations to a strong result. So look, you've answered a lot of my questions. I think maybe just two for me. Firstly, great job on making the changes back in February, March and seeing the results in Q2. To what extent are these operational efficiency gains? Do you have more to come in terms of the initiatives that you plan both on the revenues basis?
And also, I guess, related to the costs, nice to see costs coming down a little bit. What's been the driver of that? And how should we think about kind of OpEx into the second half?
And then maybe lastly on Thailand that -- what's Galaxy's interest level on Thailand? And if you can share your expectation on timing of any kind of bidding project, that would be great.
Sure. I guess, let me go through it step by step, I hope I remember all your questions. So what's more, I guess, after a few quarters of operation in Galaxy Arena, of course, we learned and we learned quick. And of course, we believe that the programs of events that were put in place has to be relevant. And we're seeing in the last -- particularly last quarter and year-to-date, I think our programs in the Arena are quite effective and relevant to the right customers. So we continue that trend, and we will continue to start to look at all these possible programs to improve both the visitations to the property to enhance our gaming and nongaming customer attractions.
So that will be continued, and we hope -- we believe that the market is already transformed from the VIP to mass centric, which means if you have a large-scale entertainment offering, it will be advantage over the one who do not have those. So we think Galaxy is the one that we have this scale operation that could be able to improve on a quarterly basis to improve our entertainment offering. So we'll continue with that programming, and we hope that -- to see more -- almost on a weekly basis see more events happening in the property to go.
In terms of OpEx, yes, we are also very disciplined. I mentioned a few times in the last few earnings call that we ramp up the operation, but at the same time, we expand our facilities. So in the last year time, we continue to increase our head count. And until Q1 to Q2, we -- I must say that our head count's basically stabilized. And the staff cost represent almost 75% of total OpEx. So if this is stabilized, which means on a quarterly basis in the future you will see our costs also being stabilized. So if we are able to generate more revenue, then there will be a natural EBITDA flow-through.
So in terms of OpEx level, I think it will have to -- the credit has to be given to our business unit in Macau or the operation team under the leadership of Kevin Kelley. They did a very good job in managing -- manning on the quarter. So we have managed to reduce our total OpEx by 2%. So we continue that discipline, and we hope that our quarterly cost will be -- remain at similar level with a few percent difference going forward.
Lastly, on Thailand. Well, Thailand has all the characteristics for tourist destination. So I think Thailand is perhaps the most popular tourist destination in the world. And it has the natural hospitality character of the Thai people, I heard about Land of Smiles is actually from Thailand. And they also have a well-established tourism infrastructure. And I heard that they are expecting 90% recovery to the pre-COVID level, which is about 14 million visitors to Thailand. So it's quite exciting.
And also their tourism actually represents quite a large portion of GDP, I heard it's about 20% of GDP in Thailand. It looks a lot of sense that IR could be the catalyst for Thailand to generate a better economic impact. So I think that this is the right thing to do. And the #1 thing we have to see is actually the legalization of the gaming act. Currently, they're going through the public consultation in this week, so hopefully it will be passed to the Parliament for them to discuss and pass the gaming act as quick as possible.
In Galaxy here, we remain very interest and we're actively monitoring the situation in Thailand and hope that we have more clarity on the procedures and we can actually evaluate the opportunity over there.
And our next question comes from Simon Cheung from Goldman Sachs.
Thanks for the presentation. I just got a couple of questions. One is just on the often-asked topics about the criminalization of the illegal exchange. There's a lot of confusion in the market in terms of the scope to which is -- the coverage of that and perhaps the impact. We have no idea, but would love to hear your thoughts on that. That's the first question.
The second one, just looking at -- you've obviously done -- have a lot of net cash and cash flow and now that you're upping your dividend, wondering when we look at a lot of the Chinese companies, they actually do have a total capital return program, whereby they have like share buyback and dividend as well. Is there any particular reason why you prefer one over the others or not considering maybe a combined total return program?
And then lastly, I guess it's more on the housekeeping front. On the CapEx number, do you have any figures you can share with us in the second quarter, how much you spent on the CapEx?
Okay, Simon. Thanks for the questions. In terms of the illegal money exchanger, well, I think the bill to criminalize the illegal money exchanger will be passed perhaps in the next few months according to the news that I heard. So I think it's a bit early to conclude the eventual impact of this criminalization bill. But in fact, there's been a national campaign to combat this sort of activity since May or June this year from the national level. And as a result, it's quite rare now to see such activities active in our casino anyway recently.
So I really want to draw the attention to differences of the illegal money exchange channels and legitimate channels. So under the current rules and regulations, our customers from China can still spend their UnionPay card or multiple UnionPay cards if you have and also you can carry RMB 20,000 each. If you have family members with you, you can bring more, of course. And I feel it's actually good enough for those, I would say, mid-premium mass, base mass gaming customer in the current situations.
So in our perspective, if you look at our Q3 to-date number compared to Q2, our casino floor see a very high increase in table drop. Especially in August, our drop is, so far, 10% to 15% higher than Q2 average. That's suggests with all the activities that we put, nongaming activities we put, it's all the customer coming in and do they have the ability to bring in cash to expect to spend in Macau. I think there are numerous channels, legitimate channels. So that's what we see in the market and the current situation in Macau. I hope that really could actually answer to your first question.
On the return to shareholders. I think it is really a very, very good breakthrough this time. If you look at our past history of Galaxy dividend paid out, roughly about 30% to 33% in the last many years and we decide up our payout to currently 50%. Of course, we'll evaluate from time to time if there's any good opportunity that we could identify to returning our capital -- or extra cash to the shareholders, that will be an ongoing process. So rest assured that the management and the Board will consider when the time comes.
In terms of the CapEx, I do have the number. So in Q2, we spent HKD 1.1 billion in terms of CapEx. And for the whole year, I think I mentioned last time we will be spending probably around HKD 6 billion this year in terms of total CapEx.
There are currently no more questions in the queue.
Okay. Thank you for all the questions and participation in the call. We know we are one of the very late to report the results, but thank you for the participation.
But before we go, as usual, I would like to summarize the following. So first of all, we continue to believe in Macau story over the long term. And visitor penetration rate into China is still very, very low. And the expansion of IVS, combined with continued improvement in infrastructure really, really enable even greater access to Macau for Chinese customers.
So with Macau transforming to a mass-centric business model, those concessionaires with a large scale and development opportunity would definitely benefit the most, and Galaxy is one of those.
In the short and medium term, GEG has been demonstrating its ability on the following initiatives. We completed our reconfiguration of Galaxy Macau casino floor before Chinese New Year, and we continue to see improvement in the casino floor efficiency and easier for customer flow. And together with the introduction of new side bet games, our table game hold has increased, and in turn, has contributed to our market share gains.
Our strategy to expand our sales host team as announced in Q1 and deliver increased thickness to our premium mass customer and contribute to our recent market share gains as well.
Post Q2, after some meaningful market share gain in both GGR and EBITDA in Q2, the quarter-to-date Q3, our GGR share continued to improve. And in August, we have seen further accelerations.
Our entertainment and event, especially Galaxy Arena, continued to increase visitation to the property, particular focus in gaming customer. And after operating the Arena for a few quarters, our program events are more aligned and targeted to the right customer and improving both our gaming and nongaming visitation spend. In Q3 today, Galaxy Macau's visitation increased by 30% compared to Q2's average. August visitation sees almost 50% better than Q2's average.
We don't forget StarWorld. StarWorld continued to show progress in transforming the property into a mass central one. And during this time, we focused on improving our gaming floor and optimizing and yielding the remaining gaming tables. We've actually seen the highest table drop in Q2 since the border reopened last year, and we continue to move forward with our repositioning plan.
We also see record high slot revenue and handles, thanks to our innovative [ LTG ]strategy in StarWorld. So again, transformational property will continue across this year and next year and remain highly confident in the future of StarWorld.
And lastly, on the smart table implementation, we continued to roll out in July and we are quite confident we can complete the rollout by year-end at Galaxy Macau. And from the -- a few weeks of available data points, we have already seen some improvement in dealer hand speed. So we're quite a firm believer in these technologies.
And this concludes today's call. Thank you for your time today, and we'll see you in the next earning call. Thank you.
This is the end of the Galaxy Entertainment Group's conference call. Thank you for joining us today. You may now disconnect. Bye.