Inside Asian Gaming

INSIDE ASIAN GAMING | September 2011 8 Asian Gaming 50 – 2011 There were some who laughed when a relatively unknown Hong Kong construction materials company, K. Wah, was awarded a Macau gaming licence back in 2002. They’re not laughing now. Galaxy Entertainment Group (GEG)—the casino operations business spun off from K. Wah—jumped in July to second place for the first time ever in the Macau gaming revenue league table. That’s not bad for a company with less than a decade’s experience in the industry. The successful execution and launchof thecompany’sCotai project, Galaxy Macau, in mid-May, and the subsequent turbo-charging that gave to Galaxy’s already strong market performance, justifies Francis Lui’s jump to first place on this year’s list. Galaxy’s rise is due to many factors. On a day-to-day operational level, the major contribution from the newly-launched Galaxy Macau is a big reason for the company’s jump in the revenue league table. The resort grossed more in July in the mass and VIP table segments than its Cotai next- door-neighbour, Las Vegas Sands Corp’s The Venetian Macao (though not more than The Venetian and Four Seasons combined). The Venetian and the Four Seasons combined cost US$3.47 billion to build. Galaxy Macau cost US$1.9 billion, though it’s fair to point out LVS has more Cotai real estate in terms of shopping, apartments, convention space and entertainment arenas than Galaxy. Another factor in Galaxy’s rise is the continuing strong performance of the VIP table business at Galaxy’s StarWorld Hotel & Casino on Macau peninsula and the early strong showing of the high roller trade at Galaxy Macau. That’s in the context of a Macau VIP table market that is making an overweight contribution to the 48% year- on-year market growth seen in July GGR. Galaxy as a group managed HK$4.31 billion ingross table revenue in July. A total of HK$2.13 billion of that came from StarWorld, of which the bulk—HK$1.99 billion (93%)— came fromVIP baccarat. Galaxy Macau’s GGR was HK$1.84 billion, of which HK$1.49 billion (81%) was from high roller table play. Strong revenue performance is the ‘effect’ produced by good management. Mr Lui must take a significant part of the 1 (5) Francis Lui Deputy Chairman Galaxy Entertainment Group credit for the ‘cause’ part of the equation. He has been able to assemble an executive team that’s not only good at what it does, but seems to be happy in the job and isn’t afraid to connect with staff on the floor. Walk around one of Galaxy’s properties and you frequently see senior executives on the ground—more often than not with smiles on their faces. The latter can’t be said of senior staff at all GEG’s Macau market rivals. Gross revenue is not the only indicator of GEG’s performance. Capital efficiency and return on investment are also critical factors. In its results for the first quarter of 2011, GEG reported on-going ROI of 69%. That calculation was based on total EBITDA for the previous twelve months divided by the total investment, including land cost. GEG is known in Macau and beyond for having a relatively conservative approach to financing as compared particularly to its Las Vegas-based rivals in the Macau market. Las Vegas after all was a pioneer of junk-grade bonds in the 1980s, whenmost ofWall Street wouldn’t touch Sin City with a very long bargepole. The Las Vegas operators who made the jump to Macau have continued applying a highly leveraged funding model