Macau casino firm Galaxy Entertainment’s turnaround shows sector has winning hand, even if Covid-19 dominates near term, analysts say

Galaxy has also announced a special dividend of 30 Hong Kong cents per share
Other companies, however, are not expected to pay dividends in the near term, Morningstar analyst says

Casinos

Martin Choi

Published: 10:00am, 27 Feb 2022

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A recovery in Macau’s casino industry will continue, even if its near-term outlook remained challenging because of recent surges in Covid-19 cases in neighbouring Hong Kong and mainland China, analysts said.

The comments came as casino operator Galaxy Entertainment, which is owned by Hong Kong property tycoon Lui Che-woo, reported net profits of HK$1.33 billion (US$170 million) for the full year of 2021. The results, announced in an exchange filing last week, beat analyst expectations and reversed a HK$3.9 billion loss in 2020.

Galaxy also announced a special dividend of 30 Hong Kong cents per share, which “attests to our confidence in Macau, our financial strength and our future earnings potential”, Lui said in the filing. The total estimated amount of the dividend to be distributed was around HK$1.3 billion, which will be paid on or around April 29.

The special dividend came as a surprise and was a year earlier than expected, emphasising Galaxy’s “strong financial position despite the continued pandemic impact”, Morningstar senior equity analyst Jennifer Song said in an emailed response.

Galaxy’s special dividend ‘attests to our confidence in Macau, our financial strength and our future earnings potential’, says owner and Hong Kong property tycoon Lui Che-woo. Photo: Bloomberg

Galaxy had net cash of HK$27 billion at the end of December, the highest among its peers, according to Morningstar.

Galaxy’s special dividend came as a “positive surprise” and was the “first actual dividend being paid as peers paid no dividends during FY21 results”, Jefferies analyst Andrew Lee said in a report last week.

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Morningstar and Jefferies both expected the operator to continue paying dividends. Morningstar’s Song, however, did not think other companies would follow with a dividend payout in the near term, “as most of them are still struggling to turnaround their bottom-lines”.

Wynn Macau, for instance, recorded a net loss of US$208.1 million for the three months ending December, widening from a US$144.9 million loss from the same period in 2020, according to the company’s filing on February 16. The gaming operator has yet to announce its full-year results.

“Our constructive view on Macau’s long-term gaming demand is unchanged, which will be supported by China’s expanding prosperity,” Morningstar’s Song said. The American financial services firm expects Macau’s gaming revenues to recover to 45 per cent and 70 per cent of 2019 levels in 2022 and 2023, respectively, and reach a full recovery by the end of 2024.

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Galaxy’s earnings were “a strong set of results”, but a prolonged pandemic remained a key risk and could lead to slower-than-expected loosening of key border measures, Daiwa Capital Markets analyst Terry Ng said in a report last week.

“We expect the Hong Kong Covid-19 outbreak is likely to worsen before improving, which will delay eventual Greater Bay Area quarantine-free travel,” said Jefferies’ Lee. “We expect the Macau recovery to be gradual … [depending] on the government relaxing policies, such as concession renewal, quarantine restrictions and visa types.”

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