The best is yet to come for Galaxy Entertainment Group, which announced its first quarterly results since the opening of Galaxy Macau on May 15 – giving it just 47 days before the books closed. Since then, the property has gone from strength to strength, and now commands around 20% of the market. No other property in Macau has had such a dramatic impact upon opening, except the Venetian in 2007.

Critics might be quick to point out that topline numbers do not a success make, and Galaxy boss Francis Lui would be the first to admit it – in fact, he was the first to admit it at yesterday’s press conference, where he emphasized that his focus is on growing the bottom line. His new property obviously has a long way to go since its first 47 days, which threw off Ebitda of about US$1m per day – a step behind COD’s US$1.7m a day in Q2, and a long stride behind the Venetian’s US$2.8m a day in the same period. But it’s obvious that the only way that number is going is up; the question is just how fast.

From experience of watching this market, we would say it could take a bit longer to catch COD than many might expect. Mass, especially premium mass, is where the potential for margin expansion is most obvious, and Galaxy still has its work ahead of it in this segment. COD, by contrast, is hitting its stride, two years after opening. But it will come for Galaxy, too. And in the meantime, VIP marketing boss John Au is leaving his neighbors in his rear-view mirror, accounting for more than 60% of all new VIP volumes coming into Macau since the property opened.

That’s even before he opens another three rooms, or before the hotels are fully operational (another 800 rooms coming online by year-end), or before the China Rouge nightclub opens (important for VIPs).

Moreover, what most surprises us about the group’s performance so far is the boom that’s going on at StarWorld. We had been expecting the peninsula property to be seriously cannibalized by the Cotai resort’s opening. Instead, it is up on all counts: VIP, mass and non-gaming. Very impressive.

Indeed, as mentioned, we think there is a lot of fairway ahead of Galaxy right now. Until Lot 5+6 opens next year, in fact, we would not be surprised if Galaxy continues to grow its market share, perhaps all the way back to where it was when the Venetian opened, around 22-24%.

Why? Well, primarily because of its partners – Galaxy has the best relations with Sun City and Neptune of all the Macau casinos, and they currently appear to be in the ascendant. All the rest of their junket operators are solid, too.

But also because we think the management team has room to improve. To be sure, if this is how well they can perform in driving the top line so soon after opening, then it says something about how much they have to work with in improving margins. Starting with win-hold on mass – 17%, compared to the more normal 24% elsewhere – there is obviously work to be done in squeezing costs out of the system. But it’s like they say in the classics, the best way to make a small fortune is to start with a big one. As their bigger next-door neighbors are finding to their dismay, no doubt, you can’t grow your bottom line much if your top line isn’t growing.

And then there’s the real estate. We wouldn’t be surprised if Galaxy starts expanding asap, given that it has so much room to grow into. Watch this space. And stay tuned. Used with permission and copyright IntelMacau.com

I really like the look and feel of the Galaxy Macau experience. The design is on par with expectation of such a mega resort and here are some photos I took during a brief visit on a hot August afternoon. This is another children friendly casino-resort and you can see many families check-in for the last weekend of the summer holidays.

Also, Galaxy Macau hosts the recent Volleyball World Grand Prix featuring the 8 strongest teams of USA, Japan, China etc. I even catch the Team USA volleyball athletes walking in the lobby from their lunch.  Within less than 50 days of openings,  report that this establishment already commands 20% of the gaming market. This is simply incredible!

Main lobby with a gigantic ice-sculpture fountain for regular show times

The pretty Galaxy Macau guest relation ambassador

Photos used with permission of Galaxy Entertainment Group Limited.

We told you all how much we liked the hardware of Galaxy Macau the day before it opened. We were still, however, reserved in our expectations for the actual opening, mainly due to the inexperience of the management team in the mass market. We were again surprised on the upside.

Indeed, in our humble opinion, this was the smoothest, most efficient opening of a mass-market property since Wynn Macau opened in September 2006. Don’t even mention COD, which was plagued on opening day by dealer mishaps that required repeated surveillance reviews. Nor even Venetian, which caused such chaos outside the property on day one that people ended up walking all the way back to Taipa in the scorching summer heat. Grand Lisboa? Not bad, but the paint was still drying when the doors opened. Crown Macau? It still provides the template for properties opened several months too early.

Galaxy Macau’s opening wasn’t perfect. The cage was inundated – we ourselves were unable to cash in the Lui family’s generous donation to our family’s college education fund from their blackjack tables, and so will have to return today in hope of shorter queues. Some of the dealers were extremely nervous, and many of the pit bosses seemed a year or two out of high school.

But it was damn close. Here is what we liked the best:

1) Traffic management. As mentioned by numerous analysts already, GM is a very well-designed property. Foot traffic flows easily and sensibly. All the way in, through, and out again. The buses were particularly well-managed. But what really got us were all the extra hands on deck to ensure safety and ease of movement of people. Someone thought this all through very carefully, right down to having porta-potties available for those people who queued up outside hours before the doors opened.

2) Restaurant and drink service.
We went to the noodle bar closest to the front of the casino. The staff were courteous and very efficient. This was clearly a place that had been going through serious drilling for days, perhaps weeks, prior to opening. Before that, we had ordered some beers at the blackjack table and they were delivered quite promptly, which was surprising given that most Chinese gamblers don’t mix alcohol with business. The only place where we heard whining about slow drink delivery was the Macallan Bar, but we discounted that because the room was full of executives from other casinos.

Photos used with permission of Galaxy Entertainment Group Limited.

3) Loyalty-card promotions.
At every table, the dealers and pit bosses were well-trained to push the Galaxy loyalty-club cards. We don’t see the same energy put into marketing  cards at the dealer level by established casinos around town. Maybe it was opening day, but still …

4) The guest list.
It says a lot about the efficiency of a property when you go to its opening party and see who else is there. Never mind Ho Hau-wah and Tung Chee-hwa flanking Chui Sai-on up on the main stage (though that did get our Portuguese lawyer friends cracking some funny speculative jokes). Galaxy didn’t need a Tony Leung-type celebrity this time around because they could pull on the strength of their own guanxi. That showed us how good the people are running PR, government and community relations.

Now, one might argue that perhaps we shouldn’t have been so surprised about some of it. Dennis Andreaci is obviously the go-to guy for opening big casinos, having done so many of them now. He should offer a diploma course in how it’s done. Heinz Roelz is a master of hospitality, and he has some talented guys running the hotels and food and beverage outlets, including Paul Town, who opened the COD hotels, and Michael Au, who was the longtime lieutenant of Allan Ho, king of the Michelin-starred restaurants in Macau.

But the guys who we think deserve to take a really big bow today are those who made this all possible by hiring the talent in the first place. Yes, they were fortunate in having a boss who knows, like Steve Wynn, the importance of getting it right on opening day even if you have to wait a bit longer to open the doors – he could have forced his frontline staff to open before the May 1 Golden Week. Nevertheless, this was a major human-resource effort in the middle of the tightest labor market on record and one that, to be frank, we were raining on a few months ago by listening to silly gossip that suggested they were way behind on the recruitment goals and schedule. So Trevor Martin and Liviano Lacchia, please accept our humble apologies and take the credit you are due.

Now let’s wait and see how Lady Luck treats Galaxy Macau. Used with permission & copyright to IntelMacau.com

Photos used with permission of Galaxy Entertainment Group Limited.

We don’t usually write on the weekends, but we will make an exception today for Galaxy Macau, because we can’t remember the last time we felt so excited about a new property opening in Macau.

Oh, wait, yes we can: when the Venetian opened almost four years ago. The newest addition to the Taipa Strip opens its doors officially only tomorrow at 5pm Macau time (GMT+0800). But media have been given a sneak peek these past two days, and we sneaked in with them. Yesterday was spent touring the property and listening to briefings; today was spent shaking off the cobwebs after a night around the pool deck and in the Macallan Bar.

We have been trying to come up with clever, witty descriptions of the place. Unfortunately, all we can produce is this: If we had to imagine a perfect product being brought to market in Macau right now, this would be very, very close to it. Let us count the ways.

1) It makes even the Venetian look tired in the gee-whiz stakes. First impressions are everything in this business, which is something the Venetian did brilliantly when it opened in August 2007 and City of Dreams did terribly in June 2009. Galaxy Macau knocks both of them out of the park the minute you roll up to the massive front doors. The chandeliers, the marble, the glass, the colors, the design — everything about the place reminds you of other properties in Macau, only bolder and better.

2) It has learned well from the success and failures of others. Everywhere you walk in this property, you see glimpses of its competitors. Wynn is in the music and the chairs. Grand Lisboa is in the pragmatic use of space and the chandeliers. Venetian is in the vast expanse of the gaming floor and the photo-op backdrops. City of Dreams is in the boulevards that house the restaurants and a few shops around the casino. But at each turn and in each instance, you get the feeling that the developers of this property had time on their hands, and they used it well. The entrance is more gob-smacking. The layout of the floors is more varied, both vertically and horizontally. The mixture of restaurants is cleverer. The size is large but not overwhelming or disorientating. Everything seems to have been put together in just the right portions and proportions. And there is new stuff where the owners clearly went out and asked their prospective customers what they like and dislike before deciding to do it.

3) It’s an integrated resort. There is so much variety under the roof here that we have to wonder why anyone would want to go elsewhere once they walk in the door. The ladies in kimonos at Okura. The pool villas at Banyan Tree. The Starworld-templated rooms at the Galaxy Hotel. The top deck, which looks like something right out of Bali rather than a few sandpits and pools in among airconditioning vents. The 52 restaurants, covering everything from McDonald’s to the finest of fine dining, which absolutely blow their neighbors away for choice and quality. The high-limit table and slot areas on the main gaming floor, which are raised a few feet above the rest in order to seem like exclusive alcoves. The Macallan Bar, which has a whisky list as long as the Lisboa’s wine directory. The China Rouge, a high-end nightclub that will open in another month or two. The 3D cineplex that will open later this year. And so on. There appears to be something for every segment of the market above the HK$100 minimum bet entry point.

4) It has just enough for now. There is no concert hall, no mammoth shopping mall, and no cavernous exhibition center. But there is a huge piece of land out back where such things could be built once the market has shown it can support them for more than three or four days a month. Now that the Venetian’s malls are doing so well, we are hearing noises about Phase 2 having a mall. As the Lui family has always made clear, since the very first time we interviewed Francis, this is not a build-in-and-they-will-come company. The US$2bn they spent on this property is about two-thirds of what COD cost and about half of what the Venetian-Four Seasons complex cost. We think it will do more in revenues than either of them in its first 12 months. (Ebitda remains to be seen.)

5) The VIP facilities will take Galaxy’s junket partners to a new level. Forget Paiza. Seriously. Sun City has a room right off the main lobby, with an ascending staircase that leads to a well-signposted entrance. All the big operators in Macau are here, in rooms that were designed to help them gain face with the high-rollers who like to play at a variety of places. Unlike at Wynn, where the Dawei room looks like a Wynn room and the Dore room looks like a Wynn room, these rooms look like Neptune Galaxy rooms and Sun City Galaxy rooms and …. you get the drift. Some of them have private spa facilities next to the baccarat tables. Indeed, Macau has a new must-play attraction for anyone who considers themselves a big shot. Master designers might quibble with comparisons to Encore on the quality of finish in these rooms, but it’s close, and the luxury of the accommodation at Banyan Tree and Okura will be hard to beat for its Cotai rivals.

Who to credit for this achievement? Well, there were obviously a lot of hands that went into creating this product. But the name that keeps coming up is that of the boss. To call Francis Lui a hard-driving micro-manager would be an understatement, and we can certainly say from first-hand experience that the man seems tireless. But what clearly stands out in this product, as compared to StarWorld, is that he has come a long way in evolving his own understanding of what an integrated resort needs in order to be successful in this market. From the color of the table tops to the shape of the walkways through the main floor, his fingerprints are everywhere, staff assure us. We find it easy to believe. Asia’s Steve Wynn? It might well be a moniker that sticks after this resort opens. And he’s just getting started on the biggest single piece of real estate in Cotai. Stay tuned for more. Used with permission & copyright IntelMacau.com

In 2020, we are pretty sure that we will be going to another annual results press conference for Galaxy Entertainment Group where a banner will be posted behind the sprightly 92-year-old chairman, Lui Che-woo, announcing the 44th consecutive quarter of Ebitda growth. And we will very likely be saying to ourselves then, as now, “How could anyone not increase their Ebitda QoQ in a market growing as strongly as this one.”

But that would be churlish. Yes, all boats are being lifted now by the rising tide of money coming out of China, and Galaxy always goes out of its way to acknowledge this, focusing attention of media and investors on the bigger picture of overall market growth. And as the company’s results made clear yesterday, that’s exactly what happened in 2010: revenue was up 58% compared to 58% growth of overall GGR in Macau. Sure, management decided to take a charge on their bond buyback and revalued their convertible notes, which meant net profit of HK$898m missed consensus estimates of HK$1.2bn, but hey, this is not SJM, they need to manage their cash more carefully. And their Ebitda growth QoQ in 4Q was slowest in the market, but hey, this is not Sands China or Wynn Macau they need to consider their junket relationships and they don’t have a very big mass floor at StarWorld. To be sure, management knows where the company’s fundamental strength lies, and always will in the mere fact that they have a gaming license in the world’s hottest gaming market.

However, we also happen to think the management of GEG are underplaying their own individual potential to outperform the market once again, with the opening of the Galaxy Macau megaresort in six weeks’ time. We think the company has never looked in a better position to significantly increase its market share than it does on May 15. So when the chairman says he thinks the resort will help his company post a 20% increase in revenues, we would have to say, “Well, that’s good old-fashioned Chinese modesty for you.”

We have said it before, but it needs repeating: the starting point of success in Macau is great hardware. We drove up the hill between Cotai and Taipa a few nights back and looked over our shoulders at the Galaxy Macau as it went through some lighting tests on the building. It was, for lack of a better description, awesome. We have no doubt this property is going to get the foot traffic through its mass gaming floor that it needs, even if its marketing team is somewhat new to the game.

What makes us more confident than the chairman’s public forecast, however, is what we think the property is going to do to the VIP side of the business. We can see significant disruption coming as Galaxy opens the swankiest new VIP rooms in town and reaches out aggressively to its junket partners, who in turn are going to be very aggressive among the VIP customers who may currently be going through other junkets to other properties.

Not only do we think Galaxy Macau will be a disruptive force in terms of revenue share, we also think it will have a strong longer-term advantage over its neighbors-to-come in Cotai by having been the last to soak up what available local talent there is left in the labor market. Contrary to Sheldon Adelson’s silly claim yesterday that Galaxy was obliged by the government to hire two locals for every blue card because it had been too aggressive in hiring foreigners a potentially litigious claim that apparently has no foundation in fact, by the way – we think Galaxy has done better with local talent recruitment than we had previously given it credit for. The spotlight on Cotai’s future development rests currently on how Sands, Wynn, MGM and SJM will get the necessary construction workers to build their projects. What it should be focusing on is where they will get the staff to open them. Anyone who may have thought Galaxy was having a tough time ought to think how hard it will be for the next project to come along.

In conclusion, we have to throw out probably our biggest reason for being bullish on Galaxy again. Put simply, it’s encapsulated in the new resort’s slogan: “World Class, Asian Heart.” This company knows how to do business in this part of the world, by thinking longer-term and always working amicably and positively with its partners be they at the shareholder level, in government, among the community, or within its own talent pool. (When its senior staff leave the company, they are driven off in a Rolls Royce rather than packed off by security guards.) And as its chief executive made clear in response to a reporter’s question yesterday, there is zero chance of Galaxy being investigated by a US federal or state agency. That is going to increasingly count for something going forward in this market. Stay tuned. Copyright & use with permission of IntelMacau.com

The event of the year in Macau is nearly upon us, as Galaxy Entertainment Group announced yesterday the opening date for its new Galaxy Macau integrated resort on Cotai: May 15.

Yes, you heard right, that is two weeks after the May 1 Golden Week period begins. Correct, Galaxy Macau will miss one of the three busiest times of the year for the mass market in Macau. But when you have spent nearly a decade planning this event, what is another few weeks, anyway?

At least, that is how we are sure the Lui family is viewing the opening of their resort, and they are probably right to do so. Lui Che-woo didn’t become a billionaire doing business in Hong Kong and China by thinking short-term. As the slogan “World Class, Asian Heart” makes clear, this is a Chinese company (although don’t tell the Japanese guests at Okura that). This property was a long time in the making. Even though we found the press release yesterday a bit too convoluted in trying to explain why this is the first true integrated “resort” in Macau, we cannot quibble with the claim that this is the first integrated resort in Macau that has been designed with an Asian audience primarily in mind. We think, as we have said before, that this will be half the battle won when the doors open on May 15, and if the company needs a bit longer to let the paint dry before that happens, then it’s a good decision.

See you there on opening day.

Used with permission & copyright IntelMacau

It was with some surprise that we opened the newspaper this morning to see the government admitting it had decided to punish a Cotai project for violating imported labor restrictions – and read that the project in question was not Sands China’s Lot 5&6. No, indeed, it was Galaxy Macau that came under the spotlight of the government’s labor administrators for hiring too many imported workers.

We are not 100% clear on the details of what exactly has happened. The Macau Daily Times story suggested that as many as 1,000 workers would be deported as the government had decided to cut the concessionaire’s imported labor quota. Galaxy sources have indicated that the issue is still being discussed and that the 1,000 workers were not actually employed, but would be taken out of their quota going forward – meaning, we guess, that managing director Jorge Neto Valente is working the phones. What seems beyond doubt is that Galaxy was one of several sites around Macau raided by the government recently and found to be in violation of the 1:1 ratio requirement for local workers. They cannot wiggle out of that so easily.

Could it be that the “local” concessionaire doesn’t have the political pull it once thought it had? If anyone can solve this problem, Neto Valente can. But it may well be that Galaxy is in a bigger rush to get its megaresort open in 1Q 2011 than the government is prepared to countenance. And it is plausible that the government’s priority of not rocking the boat with Beijing supersedes any considerations of fast-tracking anything for anyone in Macau right now, Galaxy included.

The company rushed out a statement for us saying that it was “doing its best to employ as many local employees as possible for Galaxy Macau’s construction development”, adding that it is a “priority to hire locals”, but would not provide further details. Other sources spoke off the record and said this was not a big issue, irritating though it might be. We empathize. though we don’t think there is cause to be blase about any of this. The government’s restrictions on labor imports are the stuff of Wonderland (Alice’s version). But Wonderland is the reality every concessionaire must live within, and we find it hard to believe this will not have an effect on the timeline for the megaresort’s completion if not resolved soon.

Is it a reason to dump the stock? Not in our view. We have concerns about the Galaxy management team’s depth in mass marketing experience for a Chinese audience, but we have no doubt about the quality of the property and how well it will be perceived when it (eventually) opens. Never mind the wave pool: we too cannot understand why they put that in the design. It’s the whole package that counts. Despite being on the back-end of Cotai, and not an easy stroll from the Venetian, we think the allure of the golden cuppolas will be enough. A delay in its completion might even be a blessing in disguise, as it will give the marketing team more time to figure out the difference between Dongguan and Guangdong. Stay tuned.

Used with permission & copyright to IntelMacau