The devaluation of the yuan makes Galaxy Entertainment still cheaper. In recent days the title of the company, which operates casinos in Macau, has sold more than 10% of its market capitalization, but analysts Morningstar confirm the fair value at 41 Hong Kong dollars. Rating that determines the actions of the group a rating of four stars.
“The dollar / renminbi has fallen to below 6.4 after the last injection of liquidity by the Central Bank of China (120 billion yuan), but we expect that could register a significant effect on the accounts of the Chinese company only if the devaluation of the yuan would exceed 6% (at the time is still around 3%), “said Brian Han, analyst Equity Morningstar. “About 68% of visitors to Macao last year, came from mainland China. The loss of purchasing power of the Chinese reduce visits to the region’s gambling (this is because the currency is pegged to the Macau Hong Kong dollar, which in turn is tied to the US dollar), but in our opinion the the market is overestimating the effect this will have on the budget of Galaxy Entertainement. Because the opening of new casinos in the coming years should revive the appeal of Macao “.
The estimates of analysts
Analysts’ forecasts for the next five years indicate an average revenue growth of 4.5%, supported the opening of two new casinos, even though the current year is expected to close with a decline in revenues of 8%. The operating margin is expected to rise, however, to about 200 basis points from the current 14% to 16% in 2019. Galaxy Entertainment enjoys a position of competitive advantage within the industry ( Economic moat ), because it holds one of the six licenses granted by the government of Beijing for the management of gaming rooms in Macau region.
The high barriers to entry of new competitors, due to the political desire not to issue new permits, then provide the group an opportunity to generate high returns on capital. In addition, the penetration rate (number of visitors / population) in the regions adjacent to Macao is still very low compared to other gambling destinations like Las Vegas, and this ensures that companies in the industry high growth prospects in the medium / long term.
To read the full analysis of Galaxy Entertainment click here.
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