News:On revenues of HK$3.95bn, up 51% from 1Q09, Galaxy Entertainment Group saw ebitda in 1Q10 jump 79% year-on-year. StarWorld was the driver, with ebitda of HK$369 million up 67% due to cost controls and surging VIP volumes, delivering an annualized ROI of 35%.

Analysis:Galaxy management claim the the good performance at StarWorld was due to: “The quality of the property, its established reputation as a leader in the VIP market and GEG’s famous ‘Asian Heart’ service.” The reality is that it runs on margins (18% under US GAAP) that are far lower than Wynn, MGM, Sands and Grand Lisboa on the peninsula, never mind COD or Venetian in Cotai. It does so because it is, essentially, a boarding-house for powerful junkets who are running with the bulls at present as cash outflows from China show no signs of abating. StarWorld’s mass revenues pale in comparison to its neighbors, and its direct VIP play is not worth mentioning. That said, the ROI numbers are not to be sniffed at. Management are cautious, and this caution has served their shareholders well to date. And those ever-rising VIP volume numbers are not to be dismissed lightly, either. The question is whether this group can make its Cotai project work. Great-looking property, but different ball game altogether. Management did well to raise HK$9bn from the capital markets before they froze again on troubles in Europe, and we wait with eager anticipation to see how well they can put it to use in a mass-market property.

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