Macau’s gaming sector is experiencing a rebound after the pandemic, but the recovery is showing signs of slowing. Galaxy Entertainment Group Ltd., one of the region’s largest casino operators, has benefited from this rebound, reporting a 37% increase in revenue and a 52% jump in profit for the first half of 2024. This strong performance was driven by a surge in visitor arrivals and gaming revenue, with the number of visitors reaching 16.72 million and gaming revenue exceeding 132 billion patacas in the first seven months of the year.
Galaxy’s revenue reached HK$21.5 billion in the first half, with gaming revenue contributing nearly HK$20 billion, representing a 45% year-on-year increase. The company is also investing in upgrades to its existing resorts, including the StarWorld Hotel and Capella at Galaxy Macau, and is pushing forward with the development of Phase IV at Galaxy Macau, a large-scale project that will feature hotels, a theater, restaurants, retail spaces, and non-gaming attractions like water and entertainment parks.
While Galaxy’s performance mirrors the overall rebound in Macau’s gaming industry, the future outlook is uncertain. Despite strong growth in the first half of the year, recent monthly trends indicate a cooling rebound. The government’s projection of 18% growth in gaming revenue for 2024, reaching 216 billion patacas, might be optimistic considering the slowing pace of recovery.
Macau’s new gaming regulations have also shifted the focus away from high-roller gaming rooms, which were once a significant revenue source for casinos, towards the mass market. This shift, coupled with the cooling rebound, makes a return to the record levels of 2013, when annual gaming revenue peaked at 360.7 billion patacas, seem unlikely.
Furthermore, the Macau government is pressuring casino operators, including Galaxy, to increase their investments, with a requirement for a 20% boost in annual investment when total gaming revenue exceeds 180 billion patacas. While this mandate aims to diversify the industry beyond gaming, it will likely increase expenses for companies without guaranteeing immediate returns.
Despite Galaxy’s strong performance, investors are showing some concerns regarding the company’s valuation. The stock’s trailing price-to-earnings (P/E) ratio currently sits at 16.4 times, placing it at the highest valuation among its peers. This has prompted some investment banks to lower their target prices for Galaxy’s stock, even though they maintain their overall rating. The company’s future prospects hinge on navigating the evolving gaming landscape, addressing the new investment requirements, and adapting to the shift towards the mass market. While Galaxy’s immediate performance is strong, its future trajectory remains uncertain, contingent upon the long-term health of Macau’s gaming industry.
