HONG KONG - A prominent Hong Kong Chinese family yet again makes the biggest
news in Macau gambling this year - but for a change the news-maker is not
Stanley Ho Hung-sun and his former monopoly Sociedade de Jogos de Macau. The
transformer this time is Galaxy Entertainment Group (GEG), controlled by the
family of construction and property tycoon Lui Che-woo.
Since opening Galaxy Macau resort on May 15, the group's market share has
soared from 9% - last among the six gaming licensees - to 20%, good for second
place. In monetary terms, GEG's daily gross gaming revenue has gone from 55
million patacas (US$6.8 million) in April to 154 million patacas in November.
GEG earnings before interest, taxes, depreciation and amortization (EBITDA) for
the latest quarter reached HK$1.8
billion (US$231 million), nearly triple from a year earlier.
The GEG's share price has been less consistent, but no less exciting,
especially if you get the timing right. The stock closed last week at HK$13.90,
little changed from the HK$13.94 closing price two days before the new resort
opened. In between though, the share has surged to recent highs of just below
HK$22 in early and mid-August and tumbled more than 65% from there to an
October 4 low of HK$8.90 - before recovering 56% to its present level.
"Galaxy Macau surprised a lot of people," HSBC senior regional gaming and
consumer analyst Sean Monaghan said. "Before this property opened, Galaxy as a
company wasn't really taken seriously as a casino company compared to Wynn, Las
Vegas Sands or MGM. But this project was a game changer for the company on many
With 2,200 rooms, including luxury Asian hotel brands Okura and Banyan Tree
previously unavailable in Macau (or Hong Kong) along with its own Galaxy hotel,
and affordable souvenir options strategically convenient to the bus parking
area, Galaxy has broken the prevailing Macau-see/Macau-do mold among casino
operators. Aided by a very attractive casino that conveys elegance despite its
39,000 square meters (420,000 square feet), equivalent to five-and-a-half
football pitches, the US$1.9 billion resort attracts both wealthy and
Galaxy Macau was the first new resort to open since City of Dreams nearly two
years earlier. If that was all there was to the story, Galaxy's star would be
dimming by now. Instead it's holding on to its gains and likely to grow further
as its offerings expand.
"Investors globally now see Galaxy as having the same potential as any of the
other major casino companies," Monaghan says. "To be fair, it has more
potential than the average Macau casino company given that it has the largest
undeveloped, contiguous land bank in Macau."
That's a remarkable turnaround for a company that didn't even deserve to have
one of Macau's precious gaming licenses, according to Macau Gaming Commission
former head of legal affairs Jorge Oliveira. In January 2002, Macau officials
matched Galaxy with Las Vegas Sands, the parent company of Sands China that
needed capital to build in Macau, in a quickie marriage late in deliberations
to award new gaming licenses.
At the time, Galaxy was listed on the Hong Kong stock market as KWah
International, with interests in property, construction and building supplies.
The Lui family that controls the company also owned hotels in China and, under
the Stanford Hotels brand, in the US. Macau officials believed that that skill
set combined with Sands' experience in gaming and conventions would provide
world class competition for SJM, which received a license along with Wynn
Within months, the Galaxy-Sands marriage was careening toward an ugly divorce.
Sands complained that Galaxy's shareholder structure would lead to problems
with regulators in the US. Galaxy balked at bankrolling Sands' plans it deemed
extravagantly expensive, part of a broader disagreement over business strategy.
Reconciliation attempts failed, leaving Macau officials with what they saw as
unpalatable choices: awarding the license to one of the partners; reopening the
bidding process for one license; or having only one competitor for SJM.
Government attorney Oliveira proposed solving the problem by granting a
subconcession, a structure previously used to give legal cover to
sub-contractors for utility monopolies. Under that plan, Sands and Galaxy each
got their own licenses - and SJM and Wynn got subconcessions to sell - giving
Macau six licensees instead of three. Oliveira testified in a US court that
Galaxy wouldn't have gotten a license on its own.
At first, GEG acted as a landlord at four hotels, letting other parties run
casinos under its license. In 2006, it opened StarWorld, which became a leading
spot for VIP play but struggled to find a niche in the mass market, despite its
prime location in downtown Macau's gaming hub.
All the while, Galaxy Macau was on the drawing board. Originally scheduled to
open in January 2008, construction of the resort was delayed for various
reasons, mostly including the 2008-09 slowdown in Macau. The suspension gave
GEG time to conduct extensive research on mainland Chinese consumers,
comprising the majority of Macau's more than 25 million visitors this year.
Fruits of that research are found all over Galaxy Macau. For example, the
resort includes the world's largest rooftop wave pool, with 4,000 square meters
of water and 350 tons of white sands to create a 2,000 square meter beachfront.
"The Wave Pool on the roof appears to be an unexpected hit with the mainland
Chinese," gaming consultant IGamiX managing partner Ben Lee says.
Its popularity is no surprise to Galaxy, which ignored conventional wisdom that
Chinese don't like the sun or heat. Hainan island, China's Hawaii famed for
sand and surf, attracts more mainland visitors than Macau. Based on that
research, Galaxy management bet that leisure travelers would welcome a bit of
sand and surf in Macau, which has passable beach weather at least nine months a
On December 15, Galaxy opened a nine-screen cineplex that Lee expects will be a
smash "Whilst a cinema is a normal everyday form of entertainment in most
countries, this is again another clever idea by the Lui family," Lee says,
noting that despite a strict quota of only 20 foreign films in China each year,
the imports drew 44% of mainland box office receipts, totaling US$1.6 billion
"This brand new facility will allow [mainland] visitors to catch a new release
or even old blockbusters that were not permitted into China," Lee notes. "For
the local community that have had to make do with two small and very old
cinemas plus one theatre in Macau Tower, this new attraction, together with the
varied F&B [food and beverage] outlets, should continue drawing crowds,
giving Galaxy the buzz and energy that Chinese gamblers like."
Galaxy has its share of haute cuisine, but it has also paid attention to its
food court, featuring above-average budget options. From restaurants to retail,
Galaxy has gone out of it way to appeal to and welcome cost-conscious travelers
and make them feel welcome. The resort also has branches of Hong Kong
restaurants, including the legendary post-clubbing eatery Tsui Wah, and Hong
Kong retailers. In some ways, Galaxy helps position Macau as an alternative to
Hong Kong for mainland middle-class leisure travelers who can no longer visit
both cities on the same visa.
"Galaxy is also a cool company," HSBC's Monaghan notes. "Other casinos put
Lamborghinis on their floors but only Galaxy would put a Ferrari 458 and a
Bugatti Veyron on its floor. It just goes the extra yard" - at more than 400
kph for the Veyron.
Galaxy Macau's "world class, Asian heart" also applies to the group's business
model. It's not a model that worked in Las Vegas that's trying to find roots in
Macau, but a fresh approach from a company with no previous experience in
casinos. It's a model built on the fundamental global business principle of
providing what the market wants and wasn't getting.
Former broadcast news producer Muhammad Cohen told America's story to the
world as a US diplomat and is author of
Hong Kong On Air,
a novel set during the 1997 handover about television news, love, betrayal,
financial crisis, and cheap lingerie. Follow
www.MuhammadCohen.com for his blog, online archive and more.
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