The best is yet to come for Galaxy Entertainment Group, which announced its first quarterly results since the opening of Galaxy Macau on May 15 – giving it just 47 days before the books closed. Since then, the property has gone from strength to strength, and now commands around 20% of the market. No other property in Macau has had such a dramatic impact upon opening, except the Venetian in 2007.

Critics might be quick to point out that topline numbers do not a success make, and Galaxy boss Francis Lui would be the first to admit it – in fact, he was the first to admit it at yesterday’s press conference, where he emphasized that his focus is on growing the bottom line. His new property obviously has a long way to go since its first 47 days, which threw off Ebitda of about US$1m per day – a step behind COD’s US$1.7m a day in Q2, and a long stride behind the Venetian’s US$2.8m a day in the same period. But it’s obvious that the only way that number is going is up; the question is just how fast.

From experience of watching this market, we would say it could take a bit longer to catch COD than many might expect. Mass, especially premium mass, is where the potential for margin expansion is most obvious, and Galaxy still has its work ahead of it in this segment. COD, by contrast, is hitting its stride, two years after opening. But it will come for Galaxy, too. And in the meantime, VIP marketing boss John Au is leaving his neighbors in his rear-view mirror, accounting for more than 60% of all new VIP volumes coming into Macau since the property opened.

That’s even before he opens another three rooms, or before the hotels are fully operational (another 800 rooms coming online by year-end), or before the China Rouge nightclub opens (important for VIPs).

Moreover, what most surprises us about the group’s performance so far is the boom that’s going on at StarWorld. We had been expecting the peninsula property to be seriously cannibalized by the Cotai resort’s opening. Instead, it is up on all counts: VIP, mass and non-gaming. Very impressive.

Indeed, as mentioned, we think there is a lot of fairway ahead of Galaxy right now. Until Lot 5+6 opens next year, in fact, we would not be surprised if Galaxy continues to grow its market share, perhaps all the way back to where it was when the Venetian opened, around 22-24%.

Why? Well, primarily because of its partners – Galaxy has the best relations with Sun City and Neptune of all the Macau casinos, and they currently appear to be in the ascendant. All the rest of their junket operators are solid, too.

But also because we think the management team has room to improve. To be sure, if this is how well they can perform in driving the top line so soon after opening, then it says something about how much they have to work with in improving margins. Starting with win-hold on mass – 17%, compared to the more normal 24% elsewhere – there is obviously work to be done in squeezing costs out of the system. But it’s like they say in the classics, the best way to make a small fortune is to start with a big one. As their bigger next-door neighbors are finding to their dismay, no doubt, you can’t grow your bottom line much if your top line isn’t growing.

And then there’s the real estate. We wouldn’t be surprised if Galaxy starts expanding asap, given that it has so much room to grow into. Watch this space. And stay tuned. Used with permission and copyright IntelMacau.com