Galaxy’s Q3 EBITDA Loss Expected, Restarting E-Visa an Important Step Toward Macao’s Normalization

In line with most Macao peers, Galaxy saw a widened adjusted EBITDA loss of HKD 581 million in the third quarter from negative HKD 384 million in the prior quarter. The results contained few surprises, as Macao gaming demand was hit by a two-week shutdown in July, which dampened industry gross gaming revenue, or GGR, to just 7.8% of the 2019 level. We expect industry GGR to improve from the worst of times in the third quarter, following the resumption of e-visa travel to Macao from Nov.1, which we think is a significant step toward a durable recovery of Macao gaming demand. We maintain our long-term constructive outlook for Macao gaming sector but slightly tweak our assumptions of industry revenue to 50% of 2019 levels in 2023 from 60% in our earlier forecast, to reflect the challenges resulting from: 1) an extended zero-COVID-19 period, which may continue to disrupt tourism; and 2) slow economic growth that will likely weigh on customer spending and patron betting sizes. We expect the opening of Galaxy Macau Phase 3 project and a quicker ramp-up of volume to offset the impact of the slightly lower industry GGR assumption, and we maintain our fair value estimate of HKD 49.5 per share.