The Galaxy call was fairly optimistic (when is it not?). Most of the issues we see are on the Mass Market side – supply growth and discounting – which shouldn’t affect the VIP centric Starworld much.


Galaxy 2Q09 Earnings call:

  • Improving but more competitive Macau market
  • Continuing with the development of Galaxy Cotai but at a slower pace
  • Added 16 VIP tables in June and 6 more in July at Starworld
  • 50% of their Mass table area was closed during the quarter due to renovations
  • Cotai shell is due to completed end of 2009 and will align the opening with a recovery in the market
  • Maintained 12% market share in Q2 in the face of supply growth
  • Annualized ROI of 26%
  • Net cash positive at end of June, retired $250MM of debt at .50 on the dollar
  • Confident that they can deliver the $200MM of operational efficiencies that they have already announced



  • Did have 50% of the Mass gaming floor out of operations for at least 50% of the quarter
  • Very diligently managing their costs
  • Are they able to take on additional debt under their current credit agreements?
    • At the corporate level there are no restrictions think they need to get lender approval
    • Doesn’t sound like they have an issue here
  • Seeing positive trends in Cotai with the opening of City of Dreams – gaining critical mass needed to succeed
  • Commission Caps?
    • “Momentous occasion” the commission cap has been on the table for over a year.  They are cautiously optimistic that there will be a cap implemented by year end
    • Don’t think it will have a large impact on VIP volumes
    • We remain skeptical that the y will be enforced and are concerned with the number of loop holes – more on that later
  • How do they feel about 2010?
    • Fairly positive
  • Any other trends they can highlight?
    • VIP volumes were up around 10% in the 2Q
    • July was pretty solid as well
    • Added 6 new tables in July and relaunched the Mass gaming area this past Sunday
  • Cotai Project – remaining capex?
    • Spent HK$4BN already, have another HK$1-1.5BN left for 2009 and then another HK$4BN
    • Leverage post project will be 35-40%, and should decline once the property gets up and running
  • Mass Market strategy
    • Cash rebate programs are very competitive with the market – we are concerned with the potential for shrinking Mass Market margins
    • Volumes in July are pretty healthy
    • June was the best month for VIP volume
  • Starworld ROI – 26%, hope high teens ROI at the Cotai project and eventually break 20%
  • Tax gain was from the bond buyback – HK$800MM ($100MM US)
  • Areas for operational improvement, future for the company/ strategic direction
    • Pleased with the new marketing programs
    • Working on efficiencies
    • Focused on opening an “Asian Centric” Cotai resort
  • Will be prudent and opportunistic with debt buyback now that the paper is trading in the 90s
  • May & June visitation numbers have been very weak, despite decent revenues
    • Hasn’t affected them as much because they are VIP focused
    • Once they  re-opened, the majority of the Mass space their visitation has improved
  • Bank debt: only a few hundred million HK
  • Restatement of Mass and VIP revenues in their reporting
    • Reporting is consistent with the way they pay their commission and the DICJ practice
  • Where is the cash coming from on their balance sheet?
    • Working capital –have had inflows/deposits from new VIP room junkets
  • How will the HK$5.4BN of cash on hand be spent?
    • Mostly on Cotai – another HK$5-5.5BN to spend
    • Construction materials / city clubs/ Starworld cash flow will help fund that
    • Not unreasonable to think that they will do a new debt offering in the future given the recent repurchases - Will be opportunistic – but have no plans for a buyback right now
  • VIP/ Mass split with the capacity additions:
    • VIP – 140
    • Mass- 100
  • Cotai – spend about HK$300-400MM in 1Q09 and a few hundred MM in 2Q09
  • City Club- Declining EBITDA contribution – reorganized the business – they switched from a profit share to a top line agreement – they actually lost money in the 2H08. Think they will contribute around HK$100MM per year
  • Lots of questions on where all the cash balances came from – VIP promoter deposits and R/C draw as well…  Cash balances will obviously decrease going forward as they develop Cotai
  • Bank debt – was HK$200-300MM … now they repaid it.  I don’t understand why they just don’t disclose their debt balances – ie net cash
  • Seeing HK$50MM per quarter of savings
    • Starworld focused on managing labor and marketing.
    • Reducing work week from 48 to 40 hours. 
    • Directing investment of marketing more productively
  •  The commission cap will definitely benefit their margins, commission caps are north of 1.25% now
  • VIP volumes aren’t growing so why is everyone so upbeat?
    • Added 16 tables in June and another 6 in July
    • Over time- visa restrictions, swine flu, economy… just feels better

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