Hedgeye - GALAXY 2Q2011 CONF CALL NOTES

Galaxy delivers another record quarter and exceeds expectations.

HIGHLIGHTS FROM THE RELEASE

Galaxy Macau Adjusted EBITDA of HK$376MM and revenues of HK$2.4BN for the first 47 days of operation

CONF CALL NOTES

Demand for construction materials increased due to the increase of infrastructure projects in the China
Galaxy Macau is exceeding the targeted daily visitation of 30,000

Starworld continues to focus on cost control and improvement of operating efficiencies
City Clubs: $49MM of EBITDA in 2Q

Q&A

Mass business at GM is ramping up. They are tweaking the offering at the property. Have 72 shuttle programs. Have an aggressive database sign up program. See growth in their Mass revenue each and every week and are confident that they will get their fair share.
Slowdown of VIP in Macau? Not seeing any - July was off to a great start and August is going to be just as strong and are confident that market growth will exceed 30% for the 2011
Non-gaming revenue mix at GM is similar to other properties in the market
Galaxy Macau premium direct is a growing segment for them but they are much more weighted towards junkets
Mass hold should increase at GM as volumes ramp and dealers become more efficient
Timing of the additional 800 rooms at GM - right now they are just under 2,000 rooms in operation and hope to have all the rooms open by Golden Week in Oct / no later than 4Q
Pre-opening expenses were all GM related
Capacity for 600 tables at GM - opened with about 450 and that's where they are now - they will try to optimize the mix. 1/3 VIP and 2/3 Mass mix.
City Clubs and Construction Materials are core holdings for them
Thoughts on their market share once Sands Cotai opens?

They are more focused on ROI than market share - return expectations are mid teens to low 20's

Hold Adjusted EBITDA - benefited EBITDA by HK70-80MM at GM. Even though their hold at Starworld was good the mix was poor so they didn't benefit from decent hold at all.
Phase 2-4 of Galaxy Macau

PH2: Master planning for the project as a whole is ongoing and will move forward with PH2 when they think that the market is ready for new supply

They are well ahead of the curve in terms of margins are concerned at GM compared to other openings
Profit sharing vs. Revenue sharing is in the same direction as Starworld. Will not compete on commissions.
Capex - $12.8BN was spent through June 30th and leaves about HK$3.7BN. New Capex is HK$16.5BN for GM
Pre-opening should be less than HK$100MM in 2H 2011. They believe that they have accrued for all of their opening expenses. Anything else will not be material.
Pursing a very aggressive expansion strategy with their construction business, have no intent to dispose of it. At some point in time, they will dispose of the business but not at this point.
Starworld is about 50/50 Mass/ VIP table mix
They are now 100% top line driven at the City Clubs - they had some hold challenges this quarter. The change in the deal structure impacted results. Thinks that they can do HK$50-60MM/ Q in EBITDA.
They are significantly north of 30,000 visitors per day at GM
Actually direct VIP is about 6% of the market in this past quarter. Wynn is only at 8% last quarter, not in the mid teens.
They will dip their toes into the direct VIP business at GM
Any slowing in Visa approval?

In August, they had the first visit official visit from the central government- they are confident that they will have government support for Macau growth.