Galaxy’s balance sheet and expansion plans to support post-Covid recovery – Analysts

Analysts consider that Galaxy Entertainment Group’s (GEG) balance sheet and project pipeline put the gaming operator in a good position for a post-Covid-19 recovery despite the downturn in gaming results.

The gaming operator recently reported a 93 per cent year-on-year decrease in Adjusted EBITDA to some HK$283 million (US$36.5 million) in the first quarter of this year, with revenue dropping by 61 per cent.

During the same period, the group recorded a total of HK$5.5 billion in gaming revenue for the first quarter, a 64 per cent year-on-year drop, with VIP results dropping 67 per cent to HK$2.5 billion and total mass going down 62 per cent to HK$3 billion.

Still, financial advisory firm company, Union Gaming, indicated that Galaxy is well geared to a Macau recovery and future growth through its local development pipeline, including the Phases 3 and 4 expansions at Galaxy Macau.

‘While we remain cautious on Macau overall, we think Galaxy will remain resilient given its balance sheet, growth pipeline, and as the preferred way to play the initial recovery when travel and border restrictions are eased,’ Union Gaming indicated in a note.

Phases 3 and 4 at Galaxy Macau will add 3,500 new hotel rooms, 400,000 sqft of MICE space, as well as a multi-purpose arena, and additional F&B and gaming space.

Analysts at Sanford C. Bernstein also pointed to GEG’s ‘healthy liquidity position’ with cash and liquid investments at HK$51.9 billion as of March 31, net cash at HK$47.5 billion.

However, Bernstein estimates that the development of Phases 3 & 4 may be delayed, with Phase 3 opening may be pushed from early 2021 to mid-2021, but with the HK$50 billion budget for both phases to remain unchanged.

While visitation to Macau remains virtually shut down with the Individual Visit Scheme (IVS) and group tours still suspended as well as 14-day quarantine orders for anyone returning to mainland China after visiting Macau, Union Gaming believes ‘there is pent up demand’ and that a ‘good piece of the business should return when it is safe to do so’.

‘There are few companies if any, that understand and serve the Chinese customer the way Galaxy does,’ the brokerage added.

Union Gaming also considered that with Las Vegas Sands officially exiting the race for a Japan integrated resort license, GEG would see its chances in the process improve.