Galaxy delivers solid opening as competition likely to intensify: UBS

Galaxy Entertainment Group delivered a “solid opening” of the $2.7 billion Galaxy Macau phase 2 and Broadway Macau properties, said UBS, with Broadway bringing a unique offering to Cotai.

The expansion’s approximately 1580 rooms and 150 incremental tables have been fully operational from day one, with the “quality of the 250 all-suites Ritz…one-notch above the best hotels in Cotai (e.g. Banyan Tree in phase 1), and could be a key attraction for high-end players,” UBS said.

The research house said that, despite its size, the retail promenade and gaming area is easy to navigate, with thematic similar to that of phase I.

“Competitive landscape will likely intensify, particularly at the high end. Given difficult industry conditions, the new property by itself might not catalyse gross gaming revenue to pick up materially in the near term.”

With the quality of the rooms and food and beverage outlets at Galaxy Macau phase 2, UBS said it sees competition intensifying, especially in the junket VIP & premium mass segments. “Better penetration into premium mass could take time, partly as a new, differentiated product (the Horizon Club) is not ready as yet. Junket operators SunCity and Tak Chun will be adding their third/second rooms at GM, and cannibalization of existing rooms is possible, in our view.”

However, UBS believes there could be downside risks to consensus forecasts in the medium term (2016-17), due to GM phase 2 facing severe pressure from other project openings. 

“We are also uncomfortable about the group’s largest dependence on the VIP segment at 28% of 2015E EBITDA, versus the peer average of 20%: even though the group has been the best operator in the segment and outperformed the industry significantly during a VIP downturn, we are structurally more bearish on the segment.”

The upside scenario is that high-end demand will stop contracting further from 15Q2 onwards. “This results in 2015E VIP declining 25% versus our base case of -31%; and mass declining 5% versus our base case of -8%.”