Goldman Sachs: Raises Galaxy Entertainment (00027) target price to 53.7 Hong Kong dollars. Fourth quarter EBITDA has potential upside space.

Goldman Sachs released a research report stating that based on third quarter performance, they have made a slight adjustment to GALAXY ENT's (00027) EBITDA forecast for 2025 to 2027 by 1-2%. The target price has been raised from 53.2 Hong Kong dollars to 53.7 Hong Kong dollars. They reiterated a "buy" rating, and believe that there is potential upside for EBITDA in the fourth quarter. Assuming a market share of 21.3% for gaming revenue, fourth quarter EBITDA is estimated to be 3.7 billion yuan. In the third quarter, GALAXY ENT's EBITDA decreased by 6% to 3.3 billion yuan, which is in line with market and the bank's expectations. Performance was affected by various factors, including a decrease in contributions from the construction materials business, the impact of Typhoon Hato in September, and a high VIP win rate. After normalizing net win rate, adjusted EBITDA increased by 7% year-on-year and 5% quarter-on-quarter; profit margin remained stable at 27.4%, as the accelerated growth in gaming volume was enough to offset additional costs. The report indicates that the group's gaming revenue market share in the third quarter was 20.3%, remaining stable compared to the previous quarter's 20.4%. Management mentioned that the strong momentum in gaming revenue from October continued into November, and noted that October performed exceptionally well due to unusually high VIP win rates, estimating that the group's market share may exceed 23% in October. Management maintains their year-end market share target of 21%, while the bank estimates the fourth quarter's market share to be 21.3%. Capital expenditures for the period only amounted to 600 million yuan, totaling 2.6 billion yuan for the first three quarters of the year, much lower than the group's earlier guidance of 7 billion yuan for the full year. As a result, the group has revised their full-year guidance down to 3.5 billion yuan. Based on strong free cash flow and financial position, and with no urgent funding needs for overseas projects, management stated that they will continue to review their dividend policy (current payout ratio is about 60%), and do not rule out further increasing dividends. Furthermore, in the first three quarters of the year, the group hosted around 260 events, driving a 41% year-on-year increase in visitor traffic to Galaxy Macau. Next, the group will assist in hosting the National Games, and will collaborate with the Ultimate Fighting Championship (UFC) and TMElive under TME-SW (01698) to organize various events.