Inside Asian Gaming

INSIDE ASIAN GAMING | April 2011 44 Briefs Regional Briefs Galaxy’s debt buyback reduces 2010 net profit—but analysts stay positive Macau casino operator Galaxy Entertainment Group (GEG) recorded a 22% fall year on year in net profit in 2010 despite revenue rising by 57.4 % in the same period. But the fall was chiefly due to GEG buying back debt, the company explained. “A reduction in net profit attributable to shareholders was mainly because of one-time special gain/loss from bond buyback and early note redemption,”Galaxy said in a filing to the Hong Kong stock exchange. “Excluding those one-time items and accounting valuation of the convertible notes, net profit attributable to shareholders tripled from HK$0.4 billion (US$51 million) in 2009 to HK$1.3 billion (US$167 million) in 2010,” it added. In a presentation based on its annual report GEG also stated it had: “Strengthened [the] balance sheet by reducing cost of debt and lengthening debt maturity profile from two years at December 2009 to four years at February 2011.” In 2010, GEG reported revenue of HK$19.26 billion and net profit attributable to shareholders of HK$898 million. This was in comparison to revenue of HK$12.23 billion and net profit of HK$1.15 billion for the twelve month period ended 31st December 2009. Market estimates had been for net profit in 2010 of HK$1.2 billion said Reuters, quoting Thomson Reuters StarMine, an analytics and equity research service. Although the year on year fall in net profit was higher than market estimates, analysts remain positive on the company’s prospects. That story includes Galaxy’s entry as a major player in mass market gaming when it opens Galaxy Macau resort on Cotai in mid-May. Its existing property StarWorld and the Galaxy-licensed City Clubs casinos owned by third parties are mainly VIP-focused businesses. GEG said in its 2010 results it recorded to attain full year group EBITDA of HK$2.23 billion, up 92% year on year, as well as all-time record group EBITDA of HK$625 million in Q4 2010, up 76% year on year. The company added this was the ninth consecutive quarter of group EBITDA growth. Shares in Galaxy have nearly tripled in value over the past 12 months, outperforming rivals Sands China, Wynn Macau Ltd and SJM Holdings Ltd. Twelve out of seventeen analysts covering the stock have a “strong buy” or “buy” rating, Reuters said quoting Thomson Reuters StarMine. It added there were no sell ratings. InMarch up to 27th of the month, Galaxy had 12.3% of the Macau casino market by gross revenue according to analysts. “Time will be City of Dreams’ friend”—James Packer James Packer has hit back at critics who claim City of Dreams (CoD)—a joint venture between his Australian casino company Crown Ltd and Hong Kong- listed Melco run by Lawrence Ho—has not so far found an effective niche in the Macau casino market. Mr Packer said time would be CoD’s “friend”. CoD opened in June 2009 at a cost of US$2.1 billion with an initial focus on the mass market. The Macau mass segment offers much better margins than the VIP one, but it is a tough arena in which to gain traction. In 2010, 72% of Macau’s entire gaming revenues came from VIP baccarat. No operator and no property can afford to ignore entirely the VIP market, but CoD was arguably a little slower than some of its rivals to ramp up its high roller offer. That in part was because MPEL has a whole casino (Altira Macau) focused specifically on serving that upmarket segment. In an interview with The Australian newspaper published last month, Mr Packer refuted some analysts’ assessments that CoD has not yet whole heartedly attacked either the mass market or the high roller segment. He said he had been given some good advice by a fellowoperator and rival to MPEL and Crown in the Macau and Las Vegas markets that he “respects enormously”. “Steve Wynn, whom I know a little bit and respect enormously, gave me a piece of advice once,”Mr Packer told the newspaper. “It was: ‘Just build things as good as you can and quality will beat out gimmicks over time.’ And that is not to say that The Venetian is not high quality or a gimmick-based hotel, but I am very proud of what we have got up there. Time will be its friend.”I think that one of the things that people underestimate is how hard it is to be the sixth player in a market. We started three years after the first five [operators],” he added. “Just build things as good as you can and quality will beat out gimmicks over time.” CoD has has a 39,000 square meters casino with 400 gaming tables and 1,300 gaming machines, more than 20 restaurants and bars, a shopping mall and 1,400 rooms spread across three hotels. Galaxy Macau James Packer and his wife at the opening of City of Dreams in 2009