Galaxy Earnings: Results in Line; Quality Assets and Expansion Pipeline Underpin Long-Term Growth

Galaxy’s fourth-quarter results were largely in line with our expectations, but quarter-over-quarter improvement in gross gaming revenue, or GGR, lagged industry peers and led to a market share loss to 17.6% from 18.5% a quarter ago. Management attributes this to seasonal volatility in VIP drop volumes rather than reflecting a fundamental shift of customers away from its properties. We believe Galaxy’s high-quality assets and services, along with continued volume ramp-up at the newly launched Galaxy Macau phase 3, will drive sales growth and market share gain in the coming quarters. We also expect operating leverage to lift margins and accelerate profit growth. We maintain our fair value estimate of HKD 52.00 for Galaxy, after a minor tweak of our earnings forecasts to factor in the latest project schedule. We keep our five-year revenue and adjusted EBITDA CAGR of 17.3% and 19.7%, respectively, unchanged. The shares are undervalued currently, and we think Galaxy’s premium asset quality and strong expansion pipeline make it better positioned to capture Macao’s long-term prospects.