20130821-DBS_Group-Galaxy_Entertainment_11页_295kb

Galaxy Entertainment Summary Report

Core Content and Key Information

Galaxy Entertainment is a major player in the casino and entertainment sector in Hong Kong, with a strong focus on expanding its market share and improving its financial performance. The report highlights its performance in the second quarter of 2013 and provides forecasts for the following years. It also includes valuation metrics, key assumptions, and recommendations from DBS Vickers Research.

Main Points and Analysis

• Stock Performance and Recommendation:

  • Price Target: HK$49.80 (up from HK$43.00)
  • Recommendation: BUY
  • Reason: Earnings upgrade and potential for market share gain
  • Valuation: EV/EBITDA at 12.0x for FY14F is below the Cotai average of 13.6x

• Revenue and EBITDA Growth:

  • 2Q13 Adjusted EBITDA: HK$3.0bn, up 18% YoY and 9% QoQ
  • Mass Market Revenue: Grew significantly, with Galaxy Macau and StarWorld showing 48% and 57% YoY growth, respectively
  • VIP Revenue: Slightly declined, but slots revenue saw a 30% YoY increase
  • Overall EBITDA Margin: Improved to 19.3% from 16.9% in 2Q12

• Market Share:

  • Mass Market Share: Increased to 14.2% in 2Q13 from 13.2% in 1Q13
  • VIP Market Share: Remained flat at 19.1%
  • Slots Market Share: Improved to 12.7% from 12.2%

• Key Initiatives:

  • New Projects: Pavilion Club High Limits and Golden Touch stadium-style electronic table games
  • Galaxy Macau Phase 2: On schedule with early construction expected by the end of 2013
  • New VIP Room: Anticipated opening in 3Q13 to boost volume

• Segmental Performance:

  • Gaming Revenue: Continued strong growth across all segments
  • Construction Materials: Slightly declined in 2Q13 but remains a significant portion of the business
  • Corporate and Treasury: Minor contribution, with minimal impact on overall results

• Valuation and Financial Metrics:

  • SOTP Valuation: Total enterprise value at HK$209,098m, with a price target of HK$49.80 per share
  • Net Profit Margins: Increased from 7.3% to 15.1% over the forecast period
  • ROAE: Declined from 40.9% to 27.4% over the forecast period
  • Free Cash Flow: Improved from 1.87 in 2012 to 1.66 in 2013

• Balance Sheet Highlights:

  • Cash and ST Invts: Increased significantly, reaching HK$42,507m in 2015F
  • Net Debt/Equity: Remained at CASH in 2013F and 2014F, indicating strong liquidity
  • Current Ratio: Improved from 0.9 to 2.4 over the forecast period, showing better short-term financial health

• Capital Expenditure:

  • 2013F: Capital expenditure of HK$5,312m, with a focus on new gaming initiatives and expansion

• Historical Target Price and Ratings:

  • The price target has been consistently raised, reflecting confidence in the company's growth potential
  • The company has been rated as BUY multiple times, indicating a positive outlook from analysts

Key Financial Forecasts

FY Dec	2012A	2013F	2014F	2015F
Turnover (HK$ m)	56,746	64,071	72,435	82,224
EBITDA (HK$ m)	9,847	11,816	13,634	16,319
Net Profit (HK$ m)	7,378	9,707	11,263	13,605
EPS (HK$)	1.76	2.31	2.68	3.24
EPS Growth (%)	141.9	31.2	16.0	20.8
Net Profit Margin (%)	13.0	15.1	15.5	16.5
ROAE (%)	40.9	36.3	30.3	27.4

Summary of Key Assumptions

FY Dec	2011A	2012A	2013F	2014F	2015F
GGR Growth (%)	118.2	38.1	12.0	13.3	13.8
Rolling Chip Growth (%)	93.9	27.4	1.5	12.5	9.9
Non-Rolling Chip Growth (%)	139.9	50.0	11.1	20.9	22.4

Company Highlights

• Market Share: Improved in the mass market and slots, with VIP remaining relatively stable
• Gaming Revenue: Continued to grow significantly, especially in the mass market segment
• Capital Expenditure: Strategic investments in new gaming facilities and expansion
• Valuation: SOTP-based valuation shows strong potential for growth and improved financials

Conclusion

Galaxy Entertainment is performing well, with strong growth in the mass market and slots, and improved EBITDA and net profit margins. The company's valuation is below industry averages, which may present an attractive investment opportunity. The DBS Vickers Research team reiterates a BUY recommendation, citing potential market share gains and improved financial performance.