Galaxy Entertainment 1H net profit plunges 66% to HK$2b

Outlook remains positive for the company, however.

Galaxy Entertainment’s 1H net profit was HK$2bn, plunged 66% yoy due to cost increase exceeding revenue generated during the new opening period.

According to a research note from Jefferies, they hired more experienced hands to operate the property ahead of the opening.

The additional depreciation expenses and pre-opening costs (cHK$540mn) also dragged down the overall profit. Management will focus on operating efficiency as well as cost control to improve the margins.

Meanwhile, Jefferies expects Galaxy Entertainment’s margins to improve in 2H when the new property gradually ramps up. While we cut earnings by 22%/11% in 2015/16, outlook remains positive.

Here’s more from Jefferies:

2Q15 EBITDA beat. Revenue was HK$11.7bn dropping 36% yoy and EBITDA plunged 46% yoy to HK$1.9bn, better than consensus and JEFe. Total gaming revenue dropped 37%, in line with the market. Mass revenue dropped 15% yoy and VIP was down 40% yoy. Proposed special dividend of HK$0.14/sh (vs. 0.45 in 1H14), representing a dividend payout of 30%.

Properties updates: StarWorld was better than other properties and dropped 38% in EBITDA. EBITDA from Galaxy Macau (I & II) dropped 47% yoy, the impact on lower win rate on mass. They closed 4 VIP rooms and relocated 20% of VIP tables to Mass which will help the margins.

Galaxy Macau Phase II and the Broadway were opened in late May. The foot traffic was good, daily visitation reached c35K and hotel occupancy reached 99% in July. The new opened Horizon project attracted more players. Apart from that, there are 200 rooms, several retail outlets pending open in 2H.