In 2020, we are pretty sure that we will be going to another annual results press conference for Galaxy Entertainment Group where a banner will be posted behind the sprightly 92-year-old chairman, Lui Che-woo, announcing the 44th consecutive quarter of Ebitda growth. And we will very likely be saying to ourselves then, as now, “How could anyone not increase their Ebitda QoQ in a market growing as strongly as this one.”

But that would be churlish. Yes, all boats are being lifted now by the rising tide of money coming out of China, and Galaxy always goes out of its way to acknowledge this, focusing attention of media and investors on the bigger picture of overall market growth. And as the company’s results made clear yesterday, that’s exactly what happened in 2010: revenue was up 58% compared to 58% growth of overall GGR in Macau. Sure, management decided to take a charge on their bond buyback and revalued their convertible notes, which meant net profit of HK$898m missed consensus estimates of HK$1.2bn, but hey, this is not SJM, they need to manage their cash more carefully. And their Ebitda growth QoQ in 4Q was slowest in the market, but hey, this is not Sands China or Wynn Macau they need to consider their junket relationships and they don’t have a very big mass floor at StarWorld. To be sure, management knows where the company’s fundamental strength lies, and always will in the mere fact that they have a gaming license in the world’s hottest gaming market.

However, we also happen to think the management of GEG are underplaying their own individual potential to outperform the market once again, with the opening of the Galaxy Macau megaresort in six weeks’ time. We think the company has never looked in a better position to significantly increase its market share than it does on May 15. So when the chairman says he thinks the resort will help his company post a 20% increase in revenues, we would have to say, “Well, that’s good old-fashioned Chinese modesty for you.”

We have said it before, but it needs repeating: the starting point of success in Macau is great hardware. We drove up the hill between Cotai and Taipa a few nights back and looked over our shoulders at the Galaxy Macau as it went through some lighting tests on the building. It was, for lack of a better description, awesome. We have no doubt this property is going to get the foot traffic through its mass gaming floor that it needs, even if its marketing team is somewhat new to the game.

What makes us more confident than the chairman’s public forecast, however, is what we think the property is going to do to the VIP side of the business. We can see significant disruption coming as Galaxy opens the swankiest new VIP rooms in town and reaches out aggressively to its junket partners, who in turn are going to be very aggressive among the VIP customers who may currently be going through other junkets to other properties.

Not only do we think Galaxy Macau will be a disruptive force in terms of revenue share, we also think it will have a strong longer-term advantage over its neighbors-to-come in Cotai by having been the last to soak up what available local talent there is left in the labor market. Contrary to Sheldon Adelson’s silly claim yesterday that Galaxy was obliged by the government to hire two locals for every blue card because it had been too aggressive in hiring foreigners a potentially litigious claim that apparently has no foundation in fact, by the way – we think Galaxy has done better with local talent recruitment than we had previously given it credit for. The spotlight on Cotai’s future development rests currently on how Sands, Wynn, MGM and SJM will get the necessary construction workers to build their projects. What it should be focusing on is where they will get the staff to open them. Anyone who may have thought Galaxy was having a tough time ought to think how hard it will be for the next project to come along.

In conclusion, we have to throw out probably our biggest reason for being bullish on Galaxy again. Put simply, it’s encapsulated in the new resort’s slogan: “World Class, Asian Heart.” This company knows how to do business in this part of the world, by thinking longer-term and always working amicably and positively with its partners be they at the shareholder level, in government, among the community, or within its own talent pool. (When its senior staff leave the company, they are driven off in a Rolls Royce rather than packed off by security guards.) And as its chief executive made clear in response to a reporter’s question yesterday, there is zero chance of Galaxy being investigated by a US federal or state agency. That is going to increasingly count for something going forward in this market. Stay tuned. Copyright & use with permission of IntelMacau.com