Galaxy Entertainment Group likely to remain sole dividend payer: Jefferies

Galaxy Entertainment Group is expected to remain the only casino operator to pay dividends, according to investment bank Jefferies. Chinese tourists continue to be the primary source of visitors to Macau amid a shift towards lifestyle experiences, equity analyst Andrew Lee wrote in a recent report.

In addition, limited international flight options and delays in passport renewals allow the gaming jurisdiction to remain “one of the preferred overseas destinations”, he added.

When it comes to the junket-driven VIP segment, Lee said that it only accounted for less than 2 per cent for the casino operator which partnered with one junket company only.

While the profit margins for junket VIPs are around 10 per cent, direct VIPs enjoy higher margins of approximately 20 per cent.

“Premium mass remains the key segment with HK$20,000-100,000 ADT sweet spot,” he wrote.

ADT refers to the average amount of money that a player is expected to wager or spend per day based on theoretical calculations.

Citing estimates from the management of the casino operator, the analyst said that staff rehiring and wage inflation were likely to bring operational expenses, or OPEX, back to pre-pandemic levels.

In the third quarter of 2023, OPEX reached 90 per cent of the pre-pandemic amount of US$3.4 million per day.

In terms of manpower, the casino operator added 6,000 staff last year, taking total headcount to over 21,000 – a level that is still below the 2019 level of 22,000.

Staff costs were also pointed out in the report, which the analyst said accounted for about 80 per cent of OPEX, primarily driven by higher wages, with base salary up by 2.5 per cent.

“Galaxy was the only operator to pay a dividend during 1H23 and we expect the same for 2H23 and 2024 results,” wrote Lee. “Historically, the company’s dividend payout policy is ~30% but we think the payout ratio could be gradually increased given a strong financial position.”