CICC: Maintaining Galaxy Entertainment's (00027) “Outperform the Industry” rating target price of HK$40.80

The Zhitong Finance App learned that CICC released a research report stating that Galaxy Entertainment's (00027) 2025 and 2026 adjusted EBITDA forecasts will remain unchanged. The current stock price corresponds to 8.5 times 2025 EV/adjusted EBITDA (financial assets included in cash). The bank maintained an outperforming industry rating, maintaining a target price of HK$40.80, corresponding to 10.9 times EV/adjusted EBITDA in 2025, with 34% upside compared to the current stock price.

CICC's main views are as follows:

1Q25 results were better than market expectations

Galaxy Entertainment announced 1Q25 results on May 8: Net revenue was HK$11.02 billion, up 6% year on year, down 1% month on month, and recovered to 86% of 1Q19 level. The adjusted EBITDA was HK$3,296 million, up 16% year on year and 2% month on month, returning to 83% of the 1Q19 level, better than Bloomberg's agreed forecast of HK$3.158 billion. The bank believes that the company's performance exceeded expectations mainly due to: 1) an 8% year-on-year increase in midfield and slot gaming revenue, returning to 113% of the 1Q19 level; 2) a good VIP win rate; and 3) achieving better cost control in terms of operating costs and reinvestment rates.

Executive Performance Conference Call Highlights

1) During May 1st Golden Week, the company's total sales market share increased, with gaming revenue growth exceeding the industry average (12% year-on-year increase in the industry), thanks to strong business volume and VIP win rate; however, unlike the 2025 Spring Festival holiday, there was no long-term demand during May 1st Golden Week; 2) The performance of the high-end midfield sector continued to lead the average midfield sector, and the number of high-end midfield rated customers increased by double digits over the same period last year; 3) During May 1st Golden Week 2025, Macau Galaxy Property's passenger traffic doubled compared to May 1 Golden Week in 2024, driving higher retail sales double-digit growth; 4 ) Galaxy will host a concert by Zhou Huajian during May 1st 2025, and will host concerts with Zhang Xueyou and others on 2Q25 to further attract traffic; 5) The Galaxy Capella Hotel has been tested during May 1st Golden Week in 2025. Most hotel rooms have been opened for operation, its gaming area is fully operational (30 gaming tables have been deployed), and catering facilities will be open for operation in 2Q25; 6) Although Capella has already opened, management expects the average daily operating cost of the company to remain at the same level as the 1Q25 border; 7) With Macau and Hengqin, China Policy changes are likely to occur, and management is expected to Hengqin increases investment; 8) Galaxy continues to pay attention to opportunities in the Thai market. Management expects the Thai gaming bill to be reviewed by Parliament in July 2025, and the tender process is expected to begin in early 2026.

Risk warning: Recovery progress falls short of expectations; sales of new properties are slower than expected; increased competition may cause loss of market share.