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Aug 29,2016 09:12:51
In-line 2Q result; rising competition but well-positioned
- 2Q16 EBITDA fell 7% q/q but revenue mix improved
- Further cost savings identified
- BUY maintained with HKD34 fair value

Investment Thesis
Despite potential rising competition from new
competitors’ resorts, Galaxy remains well-positioned to
benefit from further mass market recovery with Galaxy
Macau the top property by market share. Strong
balance sheet with net cash and the largest landbank
among operators drive medium term earnings growth.

Investment Summary
1) In-line 2Q16 results – EBITDA fell 7% q/q to HKD2.3bn,
led by 17% VIP revenue decline but partially offset by
better luck. Mass revenue fell 2%, in-line with market
but EBITDA margin rose 0.5% on cost savings and
better mix, with mass and retail accounting >80% of
revenue. Special DPS of HKD0.18 was declared,
implying 30% payout but no commitment to regular
dividends in view of strong project pipeline.
2) Further cost savings expected; retail rents to stabilize
– Having achieved the planned HKD800mn cost
savings target by 2Q16, Galaxy has identified
another HKD300mn savings from labour and
marketing costs. While non-gaming revenue fell 4%,
mainly due to retail lease restructuring to lower fixed
but higher turnover rent, the process is largely
completed and rents should stabilize.
3) Rising competition but well positioned – Similar to
peers, Galaxy indicated strong momentum from July
continued in Aug. While acknowledging more
competition with 2 new competitors’ resorts opening
this year, management believes Galaxy remains wellpositioned
with Galaxy Macau (GM) now the top
property in the sector by market share across VIP,
mass, slot and EBITDA. Longer-term growth will come
from GM Phase 3 and 4 and Hengqin Island, with
more details at year-end.

Investment Risks
1) Worse than expected recovery in the VIP market
could dampen earnings significantly.
2) Regulatory and political changes eg. credit or
visitation restriction could impose uncertain business

Quotes delayed, except where indicated otherwise.
55.3 2.20 (4.14%)
Last Update 02:54:10