Morgan Stanley: Galaxy Entertainment's quarterly results exceed expectations with increased dividends, target price HKD 44

Morgan Stanley published a research report indicating that Galaxy Entertainment (00027.HK) will achieve an enterprise EBITDA of HKD 4.296 billion in the fourth quarter of 2025, representing a year-on-year growth of 33%, which is 5% higher than the bank's forecast and 9% higher than market consensus. After adjusting for win rates, the enterprise EBITDA is HKD 3.565 billion, with a year-on-year growth of 9%. The bank maintains an "Overweight" rating for Galaxy Entertainment, with a target price of HKD 44.

The annual dividend per share for 2025 is HKD 1.50, a year-on-year increase of 50%, which is better than expected; however, the dividend yield of 3.6% is lower than the 5% to 6% offered by Sands, MGM, and Wynn.

The enterprise EBITDA for 2025 is projected to be HKD 1.871 billion, a year-on-year growth of 19%, outperforming peers and significantly exceeding the market's expected year-on-year growth of 8%. Galaxy Entertainment benefits from smart gaming tables and "Side bets," which have driven an increase in mid-game win rates. The revenue performance during the nine-day Lunar New Year holiday also surpassed that of the 2025 Lunar New Year and the October Golden Week, outperforming the market.

The report specifically mentions that Chairman Lui Yau Tung hosted a conference call, which may be the first time, representing a positive surprise. He maintains the current dividend policy with a strong payout ratio of 65% (having shifted from special dividends to a regular 30%) and emphasizes that the family's position aligns with minority shareholders. He also highlighted that, unlike peers, the group does not have any royalty outflows.

Regarding project progress, Lui Che Woo stated that the fourth phase project (such as the Raffles Hotel and the second phase project) will accelerate and will not be like the third phase project (the conference center and Galaxy Macau). However, it cannot yet be guaranteed that the fourth phase project will receive approval for additional gaming tables by the time it opens in 2027. The company's expenditure for 2025 is expected to be HKD 3.5 billion, with projections for 2026 reaching HKD 11 billion to 12 billion