Costs, competition eat into Galaxy earnings

PUBLISHED : Saturday, 31 May, 2008, 12:00am
UPDATED : Saturday, 31 May, 2008, 12:00am

Rising costs and cut-throat competition in Macau's booming gaming industry weighed heavily on Macau casino developer Galaxy Entertainment during the first quarter.

The company, controlled by the family of property-to-construction tycoon Lui Che-woo, said unaudited earnings before interest, tax, depreciation and amortisation (ebitda) fell 21.3 per cent from a year earlier and 40.3 per cent from the previous quarter to HK$210 million.

Sales dropped 5.8 per cent from a year earlier and 21.3 per cent from the previous quarter to HK$2.719 billion, despite a 62 per cent surge in overall revenue among Macau casinos during the first three months of the year.

Galaxy and rival operator Las Vegas Sands Corp appeared to have suffered from the commission war that raged through the first few months of the year, as most casino operators in Macau sacrificed margins in order to raise payouts to VIP junket operators who bring in high rollers, issue them credit and collect gambling debts.

Revenue from Galaxy's 509-room StarWorld casino hotel fell 28.1 per cent from a year earlier and 19.5 per cent from the previous quarter to HK$1.833 billion. Ebitda rose 2.2 per cent from a year earlier, but dropped 33.7 per cent from the previous quarter, to HK$183 million. The property accounted for 67 per cent of group sales and 87 per cent of ebitda.

Slumping volumes in the high-roller segment drove the decrease. StarWorld's gross sales of VIP gambling chips, a proxy measure for wagering volumes, fell to HK$47 billion from HK$53.3 billion during the fourth quarter. The casino won back 3 per cent of chips sales, resulting in VIP winnings of HK$1.391 billion, down 12 per cent from the fourth quarter despite the addition of 10 VIP gaming tables bringing the total to 69.

Business at Galaxy's four franchise-style 'city club' casinos plummeted as players migrated to larger, flashier resorts. Casino winnings fell by half from a year earlier and 28.6 per cent from the fourth quarter to HK$523 million, while ebitda collapsed to HK$3 million, down from HK$27 million in the fourth quarter and HK$76 million a year earlier.

In an effort to regain market share, Galaxy said it had raised junket commissions and had 'reached an agreement' with a major VIP junket operator to install up to 100 new VIP gaming tables at StarWorld.

Sources have said the junket operator was Neptune Group. Galaxy said yesterday it would disclose details of the agreement 'in the near future'.


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