Inside Asian Gaming

53 48 slot machines, and largely continues the company’s focus on the high-roller market. Apart from lacklustre customer traffic, the com- mon feature across all of Galaxy’s properties to date is a surfeit of gaudy neon on their facades, the only benefit of which seems to be to providing illumination for pedestrians at night. Fortunately, the in- teriors are more tasteful. Galaxy first major mass-market property will be StarWorld, sched- uled to open in August with 300 tables and 300 slots, as well as 500 five-star hotel rooms. StarWorld will thankfully be spared the retro charm of 20-foot high neon chips and playing cards on its exterior, though our marketing columnist Octo Chang points out the building is somewhat reminiscent of a children’s Lego project. StarWorld aims to provide what Galaxy refers to as “affordable luxury,” adhering to the company’s concept of an “Asian price point.” Arguing there is only one price that Asians are willing to pay ig- nores the clear market for high-priced luxury offerings being pursued by other operators such asWynn Resorts.Furthermore,if Galaxy really believes the foreign casino operators developing new properties in Macau will focus solely on providing pricey attractions, it could find itself unprepared for competition in the lower-end market segment it is pursuing – Sands Macau’s successful high-traffic noodle shop dem- onstrates LVS Chairman Sheldon Adelson’s intention to“maximise ev- ery opportunity”by targeting several price points. Galaxy’s most ambitious mass-market project is the Cotai Mega Resort, slated to open in 2008. The Mega Resort will be completed in four phases by 2009, and will house 450 tables and 1,000 slots, in addition to providing a full array of dining, retail and entertainment facilities. Galaxy believes its local experience and affordable prices will se- cure it a niche and perhaps even an edge over foreign casino opera- tors in the booming Macau tourism and gaming market. It’s perhaps ironic, then, that the recent strong showing of the company’s share price is based on speculation that it is close to securing a foreign stra- tegic partner. Galaxy Entertainment Group is controlled by the family of Hong Kong property tycoon Lui Che-woo. Galaxy secured a backdoor list- ing in Hong Kong through the sale of 97.9% of its shares to the Lui family’s K.Wah Construction Materials Ltd, a subsidiary of the family’s K. Wah International – a mid-sized Hong Kong property developer – which retains an 18.7% stake in Galaxy. K. Wah International recently announced it was discussing the possible sale of part or all of its stake in Galaxy. The Luis have ample financial resources and experience in developing property, but know little about managing a gaming busi- ness. Analysts believe Galaxy would benefit greatly from enlisting a major casino operating partner. The most prominent possible buyer mentioned is Harrah’s Entertainment Inc., the world’s largest casino operator by revenue. Harrah’s has so far been excluded from the exploding Asian gam- ing market. It was beaten by Vegas-based rivals LVS and Wynn Re- sorts in securing a Macau gaming concession in 2002. Another rival, MGM Mirage, has since secured a presence in Macau through a joint venture with Pansy Ho, daughter of Macau gaming tycoon Stanley Ho. Harrah’s is clearly itching to get into Macau, especially after hav- ing just lost out to LVS again in the bidding to build Singapore’s first casino-centred integrated resort. A partnership between Galaxy and Harrah’s would be mutually beneficial. Analysts have taken a rosy view of Galaxy,which until recently has underperformed other soaring Macau casino stocks, such as Hong Kong-listed Melco International Development. Galaxy’s share price had surged to HK$8.3 on June 1 on speculation of a possible stake sale to Harrah’s, but declined to HK$7.35 by June 7. Goldman Sachs retains an outperform rating on Galaxy with a price target of HK$8.7. Goldman argues the stock’s valuation does not take into account Galaxy’s Cotai Phase 2 casino project, adding “we believe the likelihood is high that over the next 9 to 12 months Galaxy might bring in a partner to develop Cotai Phase 2,” though the partner will not necessarily be Harrah’s. Goldman Sachs does feel, however, that by partnering with Harrah’s, Galaxy would receive a boost in branding its gaming operations, facilitating the realisation of its mass market ambitions. President Casino