Galaxy Entertainment hit by trade war, weakening China, but confident on long-term
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Galaxy Entertainment hit by trade war, weakening China, but confident on long-term

Gaming giant Galaxy Entertainment reported earnings this week that demonstrated the impact of the US / China trade war and a weakening Chinese economy. These headwinds conspired to keep the company’s revenue down, though good luck on the part of the house (when the casino wins against customers more often than usual) brought its earnings up, leaving them flat against the comparable quarter in the previous year.

Galaxy’s share price declined on the back of weaker than expected earnings

Galaxy Aug 16

Source: Yahoo Finance

Earnings for the quarter came in at HKD 4.33 billion – flat against the year-ago period, but a sequential rise of 8.8% against the previous quarter. Revenue, however, declined by 5.4% year on year. Driving revenue over the quarter was a “solid” performance in Macau’s mass-market segment, which helped to offset the impact of a “challenging” VIP gaming sector.

These weaknesses were caused, according to Galaxy, by the impact of the on-going trade war and weakness in the Chinese economy. Despite this, the group’s chairman, Lui Che Woo, said that the company has “confidence in the longer-term outlook for Macau and for the company.”

Lui continued: “The overall market in Macau remains relatively stable despite a decrease in VIP volumes due to increasing regional competition, ongoing trade tensions and a slowing Chinese economy. We continue to reallocate our resources to the highest and best use and focus on growing the higher margin mass business.”

JP Morgan Securities (Asia Pacific) argued that the company’s performance should be seen in context, reflecting positively on Galaxy. In a note, the brokerage wrote: “We view Galaxy Entertainment’s mass performance as respectable amidst growing competitive pressure from new(er) casinos on the Cotai East (such as Morpheus, MGM Cotai), better than most other Cotai casinos this quarter.”

Disclosure

Dominion holds Galaxy Entertainment Group in its Global Trends Luxury Fund.


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