Morgan Stanley lowers Galaxy’s 2024 EBITDA forecast by 14%

Brokerage firm Morgan Stanley has adjusted its 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA) forecast for Galaxy Entertainment Group (GEG) downward by 14 percent to HKD 11.8 billion ($1.5 billion), indicating a recovery to 72 percent of pre-Covid levels.

On Tuesday, analysts Praveen K Choudhary and Gareth Leung said that the revision was influenced by their anticipation of a lower mass market share and increased costs for GEG.

Morgan Stanley projects a decrease in GEG’s mass market share to 17.2 per cent in the initial quarter of 2024, falling short of the market consensus.

“We also think consensus underestimates the potential operating deleverage as the company increases operating expenses to gain market share and for non-gaming investment,” the analysts remarked.

GEG’s valuation premium stems from its historical execution record and the ongoing phase 3 & 4 expansion, noted the analysts. However, recent market share declines are expected to result in negative earnings adjustments and the erosion of the premium.

“We think the premium will narrow as peers resume dividends; moreover, the opening of Raffles did not result in market share gains for Galaxy,” the report said.

Morgan Stanley suggests that the projected first-quarter earnings and the downward revisions in earnings might exert pressure on stock prices in the short term. Nevertheless, the brokerage maintains an optimistic outlook for increased share gains from the latter half of 2024 onwards.

Additionally, the brokerage revised down the 2025 EBITDA forecast for GEG by 4 percent to HKD 14.4 billion, signaling a recovery to 87 percent of 2019 levels.