Galaxy Entertainment Group (GEG) might have enjoyed more impressive results in 3Q17 but the company remains seriously under-valued, according to Union Gaming’s Head of Asia Equity Research Grant Govertsen, with Broadway’s untapped potential and future extensions at Galaxy Macau to provide significant upside.
Dissecting the company’s quarterly results, which saw it outperform the market in both the mass and VIP sectors – with revenue up 23% year-on-year to HK$15.9 billion and EBITDA up 31% – Govertsen pointed to the success of Peninsula property StarWorld as an example of GEG’s ability to “give customers what they want.” And he pointed specifically to Broadway, whose 3Q17 results were heavily impacted by a month-long closure as a result of Typhoon Hato on 23 August, as one to keep an eye on.
“Although we wouldn’t expect the company to recreate the success seen at StarWorld to Broadway over the near or medium terms, our view is that the long-term outlook for Broadway is becoming increasingly valuable by the day, for which the company is currently not receiving any valuation credit,” Govertsen surmised. “Ultimately, we look at Broadway in a similar way to the rest of the company’s Cotai land bank.”
The Macau-based analyst also noted that Galaxy Macau Phases 3 and 4, of which further details will be announced in early 2018, are set to provide enormous benefit to the company.
“There is likely only modest valuation credit currently being given to the company as it relates to its significant Cotai land bank where it will build Phases 3/4 (as well as potentially redeveloping the Broadway site),” he said.
“Whatever Galaxy builds in terms of Phases 3/4 is likely to come with some number of table games (the government is still sitting on several hundred even after the next two Cotai projects open) but more importantly will bring online more hotel rooms, which continue to be in short supply for Galaxy.
“We’re currently ascribing ~$10 per share in value for the initial parts of the Phase 3/4 development that is likely to be in the form of additional rooms (among other non-gaming). Ultimately Galaxy can yield up its gaming metrics based on additional room supply. As Phases 3/4 get built-out there exists significantly more value to be unlocked.”
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