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Macau tourists help Galaxy casino beat profit estimates

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Galaxy Entertainment Group Ltd's profit beat expectations as its tourist-friendly casino resorts drew more recreational bettors and tourists to Macau.

[HONG KONG] Galaxy Entertainment Group Ltd's profit beat expectations as its tourist-friendly casino resorts drew more recreational bettors and tourists to Macau. Shares rose to the highest level in more than a year.

Adjusted earnings before interest, taxes, depreciation and amortisation in the three months ended September rose 28 per cent to HK$2.7 billion (S$484.5 million) from a year earlier, the Chinese city's second-biggest operator by market value said Wednesday. That compared with the HK$2.4 billion median estimate of nine analysts surveyed by Bloomberg.

Galaxy shares reversed earlier losses, rising as much as 3.8 per cent to HK$32.65 in Hong Kong, the highest intraday level since August 2015. The Hang Seng Index fell 0.7 per cent.

Galaxy opened two tourist-focused projects last year that were followed by new local resorts by Wynn Resorts Ltd and Las Vegas Sands Corp this year.

The new resorts have helped reverse Macau's two-year slump in gambling revenue, after China's government ordered the city to diversify from the industry amid an anti-corruption campaign, which scared away VIP players.

"The Macau market is clearly transitioning to a mass market focused environment and Galaxy continues to align its operations with the changing market conditions," the company said in a statement Wednesday. While gambling revenue for Galaxy's main VIP business slumped 4 per cent in the third quarter, receipts for recreational gamblers, or the mass market, jumped 17 per cent.

Mainland Chinese tourists, the bulk of visitors to Macau, rose to almost 1 million during the week-long National Day holiday this month. That's the most tourists from China visiting the world's largest gambling hub during Golden Week in at least a decade.

"Mass market showed strong growth at Galaxy Macau, which was well in excess of the market," said Grant Govertsen, a gaming analyst in Union Gaming Group LLC, referring to the operator's flagship casino resort.

"Galaxy is outperforming the market despite the addition of new supply during the quarter." Mass market revenue rose 17 per cent to HK$5.4 billion in third quarter. VIP revenue fell 4 per cent to HK$6.1 billion. Visitor arrivals grew 0.1 per cent, overnight visitors grew 9 per cent and Galaxy shares have jumped 29 per cent this year through Tuesday, ahead of the 7.5 per cent rise in the Hang Seng index and the 23 per cent gain in Bloomberg Intelligence's index of Macau casino stocks.

Still, the increase in number of competing casinos, with more due to open next year, could put pressure in the coming months.

An ongoing price war could bring risks to margins, as Macau casino operators cut hotel rates and lowered minimum bets to draw players, Daiwa Capital Markets Hong Kong Ltd analysts led by Jamie Soo wrote in a note before the results.

Hotel room rates fell to recent record lows after the early-October Golden Week holiday and "this is not an encouraging sign as a proxy for gaming demand," they wrote.