By Kate O’Keeffe
The Wall Street Journal (Online and Print)
HONG KONG—Galaxy Entertainment Group Ltd. on Thursday reiterated the early 2011 opening date for its flagship casino resort in Macau and said its third-quarter earnings before interest, taxes, depreciation and amortization more than doubled from a year earlier.
The Hong Kong-listed casino operator, controlled by the family of tycoon Lui Che Woo, said Ebitda for the three months ended Sept. 30 rose to 616 million Hong Kong dollars ($79.4 million) from HK$287 million, driven by greater gaming volumes and cost controls at its StarWorld casino and hotel. It was the company’s eighth-consecutive quarter of Ebitda growth. Galaxy didn’t disclose its third-quarter net profit.
Third-quarter revenue rose 88% to HK$5.4 billion from HK$2.9 billion amid a more than 60% jump in gambling revenue in Macau in the January-September period.
Executives reiterated in an interview that the company’s new casino resort will open as scheduled in early 2011, despite concerns among analysts the project could be delayed after two senior executives at the nearly $2 billion casino resort project resigned.
“We’re very confident about the opening schedule,” said Galaxy Chief Financial Officer Bob Drake, adding that he was also sure the project would open “with the right amount of people,” even as Macau is facing a labor shortage with a 97% employment rate. Galaxy needs 7,500 to 8,000 staff for the resort, he said.
Wells Fargo analyst Carlo Santarelli wrote in a note Monday that he had already considered an early 2011 opening for Galaxy to be “an aggressive timeline,” and that the executives’ departure made it seem “even less likely” the project would open as scheduled. Instead, he is expecting a May or June launch.
Galaxy said Monday that Steve Wolstenholme, chief operating officer of the Galaxy Macau project, and Jeff King, senior vice president of marketing for Galaxy Macau, had resigned. Messrs. Wolstenholme and King were two of four executives dedicated to the project listed on the company website’s management page.
Mr. Drake said Francis Lui, the company’s vice chairman, spearheads corporate strategy and that the two executives had just been implementing his vision.
Galaxy said in August it would spend an extra HK$800 million to open a larger proportion of the 2,200 rooms planned for the Galaxy Macau project at its launch because it doesn’t expect any new casino openings in Macau for “at least the next 12 months.”
The company’s decision to increase its investment in the project to a total HK$14.9 billion at such a late stage came as casino operators have been scrambling to boost their presence in the territory, the world’s largest gambling center by revenue.
Rival Sands China Ltd. said in August it would delay the opening of its US$4.1 billion expansion project in Macau because of a lack of construction workers.
Galaxy executives also said Thursday the company wasn’t partaking in any “commission war” to drive its business. The comments follow recent speculation from analysts and operators that some casino firms have been offering increasingly favorable terms to junkets to drive market share.
“We want to make it crystal clear that we focus on driving profitable volumes and we’re not involved in any commission war or cannibalization,” said investor relations principal Peter Caveny.
Junkets, a fixture in the Macau gambling market, bring high-spending gamblers to the casinos, issue them credit and collect on debts in exchange for commission. As gambling debt isn’t recognized in China, there are no legal means for casinos to recover debts owed to them by Chinese gamblers, who account for the majority of their customers.
Sands China Chairman Sheldon Adelson said on a Las Vegas Sands Corp. earnings call Wednesday that Galaxy may be involved in a pricing war in Macau along with some of the other operators.
“Under these arrangements, the operator may actually receive as little as 3% of gross revenue, but they use 100% of the gross revenue to determine their market share,” he said.
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