Galaxy Entertainment (27 HK)

Transcription

1 Equity Research Macau Gaming Galaxy Entertainment (27 HK) Buy (initiation) Target price: HK$79.7 Ou Yafei SFC CE No. BFN GF Securities (Hong Kong) Brokerage Limited 29-30/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong Table profit to continue to increase; strong project pipeline Table profit growth to be main driver of earnings growth in 2018/2019 Win/table/day in the company s VIP and mass gaming businesses grew 29% YoY and 14% YoY respectively in We think the Hong Kong-Zhuhai-Macau Bridge and Macau light rail will drive continued growth in Macau visitor arrivals and gaming expenditure, and we expect Galaxy Entertainments table profit to continue to increase in 2018/2019. In particular, StarWorld Hotel should maintain industry-leading VIP daily chip rolling value per table, while Galaxy Macau should see considerable room for growth in its mass gaming business win/table/day. Before the opening of Galaxy Macau s phase III project, the company will not see significant growth in its operating cost and depreciation, and table profit growth will make notable contributions to its net profit growth. Largest project pipeline among listed peers Projects to be developed include the Galaxy Macau phase III & IV projects and the Hengqin project. The Galaxy Macau phase III and IV projects are expected to be put into operation in 2020 and 2022 respectively, with total construction of 1m m 2, which would double the existing of Galaxy Macau. In addition, in Jan 2014, the company signed a framework agreement on cooperation with Hengqin New Area, planning to develop a resort on Hengqin island. According to the company s 2017 annual report, the Hengqin project is still in the planning stage and more details will be disclosed later this year. Moreover, the company is also planning a casino project in Boracay and exploring opportunities to bid for a gambling license in Japan. We expect EBITDA of HK$16.5bn/18.3bn/21.5bn The company s current market cap corresponds to 17.3x/15.6x 2018/19E EV/EBITDA (March 2 close HK$68.00), slightly above industry average. However, as Galaxy Entertainment focuses more on premium mass players, it will benefit more from upcoming mass gaming market growth driven by consumption upgrade. The company is more comparable to (1128 HK) and MGM China (2282 HK) which also focus on the premium mass market business. s and MGM China s current market cap represents 16.8x 2018E EV/EBITDA on average. Considering the significant profitability improvement for Galaxy Macau to be brought by the opening of its phase III & IV projects in 2020/2022, and the fact that neither nor MGM China have any new project development plans before 2022, we think Galaxy Entertainment is deserve a 20% valuation premium over its comparable peers. We initiate coverage of the company with a Buy rating and a target price of HK$79.7 based on 20x 2018E EV/EBITDA. Risks Delays in the opening of the Galaxy Macau phase III project; opening of new casinos by competitors leading to intensified competition in the Cotai region; decreased gaming expenditure by mainland visitors due to tightening forex control in China. Stock performance Galaxy Ent 银河娱乐 HSI 恒生指数 92% 64% 36% 8% -20% Source: Wind Earnings forecasts 2016A E 2019E 2020E Revenue 52,826 62,450 70,936 78,081 89,703 YoY (%) 3.6% 18.2% 13.6% 10.1% 14.9% EBITDA (HK$ m) 10,348 14,147 16,536 18,348 21,578 YoY (%) 18.5% 36.7% 16.9% 11.0% 17.6% Net profit (HK$ m) 6,283 10,527 13,258 14,471 16,978 YoY (%) 51.0% 67.5% 25.9% 9.1% 17.3% EPS (HK$) P/E P/B EV/EBITDA , GF Securities (Hong Kong) This is a summary of a report originally written in Chinese. Please contact us for more information of the original report. The Chinese version shall prevail in the event of any discrepancy between the two versions.

2 Figure 1: Location of properties owned by Galaxy Entertainment Border Gate China (Zhuhai) Macau Peninsula Amizade Bridge Sands China Galaxy Melco International SJM Holdings MGM China Macau LRT Taipa Ferry Terminal Taipa Macau International Airport Cotai China Lotus Bridge Border Gate (Hengqin Island) Coloane Black Sand Beach Figure 2: Area of Galaxy Macau to double after the opening of Galaxy Macau phase III & IV Casino property Location Opening date StarWorld Hotel Macau Peninsula No. of rooms No. of gaming tables No. of slot machines GFA (m 2 ) Oct ,841 Galaxy Macau phase I Cotai Strip May , , ,000 Galaxy Macau phase II Cotai Strip May , , ,000 Broadway Macau Cotai Strip May Galaxy Macau phase III & IV Cotai Strip Phase III under construction, Phase IV in planning stage Hengqin, Hengqin resort Planning Zhuhai ,000,000 Main non-gaming facilities 500-seat multi-purpose banquet hall, 12 restaurants Grand Resort Deck of 52k m 2, including 5k m 2 Skytop Wave pool, 50 restaurants and 1,000-seat theater Grand Resort Deck expanded to 75k m 2 ; 575m Skytop Rapids; 200 shops, 100 restaurants, and exhibition venue with capacity of 3k people 3,000-seat Broadway stage, 10 shops and 40 restaurants 95% of the will be used for nongaming facilities Maldives-style resort 2

3 Figure 3: Galaxy Macau phase III & IV expected to be given new gaming table quotas Figure 4: New additions of 4,500 guest rooms for Galaxy Macau phase III & IV 2, , ,000 1,680 1, , SJM Sands Galaxy Melco Wynn MGM Holdings 澳博金沙中国 China Entertainment 银娱 International 新濠永利 Macau 美高梅 China Sands Galaxy Melco Wynn MGM SJM 金沙中国银娱新濠国际永利美高梅澳博 China Entertainment International Macau China Holdings 已有赌桌数量 Existing no. of gaming tables 预计新增赌桌配额 Expected addition of gaming tables Existing 现有客房数量 no. of rooms 预计新增客房数量 Expected growth in the no. of rooms Note: MGM China data includes MGM Cotai SJM Holdings (880 HK), Sands China (1928 HK), Melco International (200 HK), Wynn Macau (1128 HK), MGM China (2282 HK) Note: MGM China data includes MGM Cotai Figure 5: Location of Galaxy Entertainment s resort in Hengqin Figure 6: Location of Hengqin island Central business Macau High-tech industrial zone Business service Cultural & creative Integrated service Port Teaching service Lotus Bridge Science, education, R&D Ecological landscape Leisure & resort Hengqin Island Galaxy Entertainment Hengqin resort Leisure & tourism Sources: Google map, GF Securities Development & Research Center 3

4 港币百万 港币千元 Company report Figure 7: VIP daily rolling chip value per table (3Q17 & 4Q17) Figure 8: Mass gaming business win/table/day (3Q17 & 4Q17) HK$ m 星际酒店 Starworld Hotel 永利澳门 永利皇宫 Wynn Palace VIP daily rolling chip vol. value per table 贵宾业务每桌每日转码额 新濠 Studio City 影汇 巴黎人 Parisian Macau 3Q Q3 澳门银河 Galaxy Macau 威尼 Venetian 斯人 百利宫 Plaza Macau 新葡京 Grand Lisboa 4Q Q4 新濠天地 City of Dreams Sands Cotai Central 金沙城中心 新濠锋 Altira Macau 美高梅 MGM Macau 澳门 金沙澳门 Sands Macau HK$ K 新濠天地 City of Dreams 永利澳门 Galaxy Macau 澳门银河 中场业务每桌每日赢款额 Mass win/table/day 星际酒店 Starworld Hotel Wynn Palace 永利皇宫 百利宫 Plaza Macau 2017Q3 3Q17 MGM Macau 美高梅澳门 威尼 Venetian 斯人 Sands Cotai Central 金沙城中心 4Q Q4 新濠 Studio City 影汇 Parisian Macau 巴黎人 金沙澳门 Sands Macau 新葡京 Grand Lisboa 新濠锋 Altira Macau Figure 9: Hotel occupancy rate for major hotels under gaming listcos (4Q17) 100.0% 酒店入住率 Hotel occupancy rate 95.0% 90.0% 85.0% 80.0% 75.0% 70.0% Galaxy Macau 银河澳门 Broadway Macau 百老汇 Starworld Hotel 星际酒店 永利澳门 Studio City 新濠影汇 Altira Macau 新濠锋 Sands Macau 金沙澳门 Parisian Macau 巴黎人 MGM Macau 美高梅澳门 Grand Lisboa 新葡京 City of Dreams 新濠天地 Wynn Palace 永利皇宫 Venetian 威尼斯人 Sands Cotai Central 金沙城中心 Plaza Macau 百利宫 4

5 Figure 10: Key assumptions for earnings forecasts of Galaxy Entertainment (HK$ m) E 2019E 2020E GGR 47,331 55,827 64,019 70,571 81,429 % YoY 2% 18% 15% 10% 15% VIP gaming business 26,177 31,273 36,898 41,132 47,320 % YoY -8% 19% 18% 11% 15% Mass gaming business 19,289 22,535 24,998 27,190 31,597 % YoY 20% 17% 11% 9% 16% Slot machine segment 1,865 2,019 2,123 2,249 2,513 % YoY 7% 8% 5% 6% 12% EBITDA 10,348 14,147 16,536 18,348 21,578 % YoY 8% 37% 17% 11% 18% Net profit 6,283 10,527 13,258 14,471 16,978 % YoY 51% 68% 26% 9% 17% Sources: data based on GF Securities forecasts, GF Securities Development & Research Center Figure 11: Macau gaming peer comparison P/E EV/EBITDA March 2 close (HK$) e 2019e e 2019e Sands China Galaxy Entertainment MGM China SJM Holdings Melco Resorts & Entertainment Average Sources: Bloomberg, GF Securities Development & Research Center Note: Valuation of Galaxy Entertainment calculated based on earnings forecasts by GF Securities, others based on Bloomberg consensus. Other listed companies mentioned in the table include Sands China (1928 HK), (1128 HK), MGM China (2282 HK), SJM Holdings (880 HK), Melco Resorts & Entertainment (6883 HK). 5

6 Figure 12: Financial statements Balance sheet (HK$ m) Cash flow statement (HK$ m) Year ended 31 Dec E 2019E 2020E Year ended 31 Dec E 2019E 2020E Current assets Operating cash flows Deposits Pre-tax profit Cash & bank balance Depreciation & amortization Receivables & adv payments Change in working capital Other CA Others Non current assets Investing cash flows Fixed assets Capex Affiliates Decrease in investment AFS assets Increase in investment Other non current assets Others Total assets Financing cash flows Current liabilities Dividends paid ST borrowings Increase in borrowings Accounts payable Decrease in borrowings Other CL Increase in share capital Non current liabilities Others LT borrowings Restated forex changes Other non current liabilities Change in cash Total liabilities Cash balance Share capital Reserves Minority interest Key financial ratios (HK$ m) Liabilities & shareholders' equity Year ended 31 Dec E 2019E 2020E EBITDA margin (%) 19.6% 22.7% 23.3% 23.5% 24.1% Income statement (HK$ m) ROE 14.4% 20.7% 22.0% 20.6% 20.8% Year ended 31 Dec E 2019E 2020E ROA 10.3% 14.0% 14.8% 14.2% 14.6% Revenue Current ratio Operating cost Net debt/ebitda EBITDA Operating cash flow/ebitda Depreciation & amortization Gross revenue Other expenses StarWorld Hotel 11,827 14,184 16,206 17,495 18,414 Interest income (expense) City Clubs Affiliates Macau Galaxy 38,075 44,578 51,028 56,766 67,345 Pre-tax profit Broadway Income tax Construction materials & others 2,141 3,067 3,159 3,254 3,352 Minority interest Property EBITDA Recurring net profit StarWorld Hotel 2,150 2,966 3,489 3,781 4,021 Non recurring items City Clubs Net profit Macau Galaxy 8,508 11,130 13,075 14,594 17,585 Adjusted EPS Broadway Reported basic EPS Construction materials & others EPS (HK$) Company expenditures

7 Rating definitions Benchmark: Hong Kong Hang Seng Index Time horizon: 12 months Company ratings Buy Stock expected to outperform benchmark by more than 15% Accumulate Stock expected to outperform benchmark by more than 5% but not more than 15% Hold Expected stock relative performance ranges between -5% and 5% Underperform Stock expected to underperform benchmark by more than 5% Sector ratings Positive Sector expected to outperform benchmark by more than 10% Neutral Expected sector relative performance ranges between -10% and 10% Cautious Sector expected to underperform benchmark by more than 10% Analyst Certification The research analyst(s) primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the company or relevant securities that the analyst(s) covered in this report: (1) all of the views expressed accurately reflect his or her personal views on the company or relevant securities mentioned herein; and (2) no part of his or her remuneration was, is, or will be, directly or indirectly, in connection with his or her specific recommendations or views expressed in this research report. 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