Galaxy earnings plunge 46 pct on downturn, costs of new casinos

Lui Che-woo

Galaxy Entertainment Group Ltd. reported second-quarter earnings plunged 46 percent on higher operation cost from its new casino resorts and amid a declining market in the city’s gambling industry.
Adjusted earnings before interest, taxes, depreciation and amortization at Galaxy dropped to HKD1.9 billion (USD245 million) from a year earlier, the casino operator controlled by billionaire Lui Che Woo said yesterday. That compares with the HKD1.8 billion median estimate of five analysts compiled by Bloomberg.
While Galaxy posted “solid” results, “the major concern is demand for the gaming sector in Macau is quite limited now,” said Chris Kwai, analyst at China International Capital Corp. He doesn’t expect its new properties to improve general demand in the city.
Galaxy in May opened its $3.1 billion second-­phase expansion of a resort and an adjacent revamped property in the Cotai area, marking Macau’s first casino projects in three years. A wave of casinos featuring more non-gaming amenities will open in the next few years which operators hope will draw more visitors back amid the city’s worst downturn on record.
The results include 35 days of operation for the new properties and reflect Macau’s continued challenging market conditions as macro factors hit customer spending behavior, Galaxy said in a statement. The casino operator implemented a salary freeze for all senior executives while declaring a HK$0.14 per share special dividend, it said.
High-end gamblers have been staying away from Macau’s tables because of the slowing Chinese economy and widening of the country’s anti-graft campaign, leading Macau’s casino revenue to fall for a 14th month in July.
Still, the slump in the world’s largest gambling market has been easing for five straight months, raising hopes a recovery is on its way. While the industry may see a 30 percent drop in gambling takings this year, it could rebound with a 4.5 percent gain in 2016, according to the median estimate of 10 analysts surveyed by Bloomberg.
The government loosened transit visa restrictions in July to allow mainland visitors to stay longer and travel more frequently to the city. Macau lawmakers are also reviewing a bill to ban smoking on all the gambling floors, a discussion that could take a year to complete.
Galaxy is “pleased” the Macau government has “indicated some flexibility and are open-minded to consider the retention of smoking lounges”, which would be positive for the casino industry, the company said. The casino smoking ban is in the committee stage and could be held up for another year, it added.
The company is “optimistic” about the medium to long term prospects for Macau and itself, as major infrastructure works will significantly enhance access to the city and boost future visits, Galaxy said.
Galaxy’s market share rose to 22.6 percent in June from 18.7 percent in May, while Sands China Ltd.’s slipped to 22.4 percent from 26.2 percent, according to data from Barclays Plc.
The Hong Kong-based company plans to spend as much as HKD60 billion for the third and fourth phases.
Melco Crown Entertainment Ltd.’s $3.2 billion Studio City resort is scheduled to open in October, featuring the tallest Ferris Wheel in Asia. Wynn Macau Ltd. will open its Wynn Palace next March and Sands China will follow with its $2.7 billion Parisian Macao opening in about a year.
“Individual new opening will not bring too much of an upside in the entire market,” Kwai of CICC said. “But once it added up all the casinos next year, people will be more fond of going to Macau.”  Bloomberg