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Galaxy Entertainment (27 HK)

OW(V): Building momentum with new resort developments
Overweight (V)
Target price (HKD)
Share price (HKD)
Potential return (%)
47.59
32.50
46.4
Note: Potential return equals the percentage

difference between the current share price and
the target price
Dec
HSBC EPS
HSBC PE
2011 a 2012 e
2013 e
0.73
44.6
1.69
19.2
2.25
14.4
Performance
1M
3M
12M
Absolute (%)
Relative^ (%)
10.9
7.0
30.5
19.8
106.0
73.2
Company to complete all Cotai resorts by end-2017, and

GFA and capex are larger than previously assumed
All resort developments are fully funded via existing cash,
cash flows and borrowings; no new equity needed
Reiterate OW(V); raise TP to HKD47.59 (from HKD39.82) on
earnings estimate changes and review of future resorts
Note: (V) = volatile (please see disclosure appendix)
21 January 2013
Sean Monaghan*
Analyst
The Hongkong and Shanghai Banking
Corporation Limited, Singapore Branch
+65 6658 0610
seanmonaghan@hsbc.com.sg
Sachin Varma*
Associate
Bangalore
View HSBC Global Research at:
http://www.research.hsbc.com
*Employed by a non-US affiliate of
HSBC Securities (USA) Inc, and is not
registered/qualified pursuant to FINRA
regulations
Issuer of The Hongkong and Shanghai
report: Banking Corporation Limited,
Singapore Branch
MICA (P) 038/04/2012

MICA (P) 063/04/2012
MICA (P) 110/01/2013
Disclaimer &
Disclosures
This report must be read
with the disclosures and
the analyst certifications in
the Disclosure appendix,
and with the Disclaimer,
which forms part of it
We reiterate our Overweight (V) rating on GEG and increase our TP by 20% to
HKD47.59/share from HKD39.82/share. The increase in the target price reflects a combination
of earnings estimate changes (stronger market growth) and changes to future resort
developments (larger resorts coming sooner), see Macau Gaming, 2013: More to come,
21 January. We also roll forward the base year for our valuation to 2013 from 2012, while
maintaining multiples and discount rates. Our target price remains based on a weighted
average of our sum-of-the-parts (SOTP) and discounted cash flow (DCF) valuations.
We increase our 2013 EBITDA estimate by 3% to HKD12.2bn (from HKD11.8bn) on
the back of stronger actual growth in the Macau market in 2012 (13.5% vs. an estimated
12.5%) and a slightly stronger growth forecast in 2013 (13.5% vs. 12.9%). Our revised
2013-14 EBITDA estimates are 13% and 10%, respectively, above consensus.
We update our Galaxy Macau model for changes to timing and capex for new resort
developments. We make no changes to Galaxy Macau Phase II (expected 2015 opening);
however, we bring forward and increase our assumptions for Galaxy Macau Phase III
(now USD4.7bn and expected 1H17 opening) and Phase IV (now USD1.9bn and expected
1H18 opening). We increase the assumed plot ratio for the entire Cotai land bank to 5.5x
from 4.7x, resulting in a 10% increase in total GFA to 24.3m sqft.
Risks: Specific risks for GEG relate to the companys ability to continue to develop
additional resorts as required. Generic risks for Macau casino concessionaires include
unexpected changes in government gaming policy or economic changes in China that
could impair customer visitation and expenditure. Business concentration risk also exists,
given that the companys operations are largely centred in Macau SAR.
Index^
Index level
RIC
Bloomberg
Source: HSBC
HANG SENG INDEX

23,340
0027.HK
27 HK
Enterprise value (HKDm)

Free float (%)
Market cap (USDm)
Market cap (HKDm)
Source: HSBC
136,054
50
17,604
136,487
abc

21 January 2013
Financials & valuation

Financial statements
Year to
Key forecast drivers

12/2011a
12/2012e
12/2013e
12/2014e
Profit & loss summary (HKDm)

Revenue
EBITDA
Depreciation & amortisation
Operating profit/EBIT
Net interest
PBT
HSBC PBT
Taxation
Net profit
HSBC net profit
41,151
5,749
-1,248
4,501
-338
3,061
3,061
-32
3,004
3,004
58,234
9,845
-2,470
7,375
-385
7,190
7,190
-58
7,067
7,067
67,812
12,151
-2,470
9,681
-335
9,596
9,596
-77
9,433
9,433
74,624
13,590
-2,470
11,120
-285
11,185
11,185
-89
10,995
10,995
Cash flow summary (HKDm)

Cash flow from operations
Capex
Cash flow from investment
Dividends
Change in net debt
FCF equity
5,758
-4,510
-4,973
-17
313
1,416
8,451
-3,233
-3,233
0
-5,255
5,161
10,808
-9,146
-9,146
0
-1,662
1,585
12,296
-14,774
-14,774
0
2,477
-2,566
1,221
27,258
15,191
12,011
44,839
10,425
12,326
315
21,290
21,234
1,171
36,387
16,853
13,672
55,580
11,733
12,326
-1,347
30,723
29,006
1,121
51,144
14,376
11,195
67,810
12,968
12,326
1,131
41,717
42,478
Year to (HKDm)
City Clubs EBITDA
StarWorld EBITDA
Galaxy Macau EBITDA
Other EBITDA
Total EBITDA
12/2011a
12/2012e
12/2013e
12/2014e
183
2,955
2,572
38
5,749
195
3,484
6,199
-33
9,845
233
3,993
8,058
-132
12,151
213
3,856
9,682
-161
13,590
Valuation data
Year to
12/2011a
12/2012e
12/2013e
12/2014e
3.4
24.6
7.3
44.6
9.5
1.0
0.0
2.3
13.8
6.4
19.2
6.4
3.8
0.0
2.0
11.1
4.6
14.4
4.4
1.2
0.0
1.8
10.1
3.2
12.4
3.3
-1.9
0.0
EV/sales
EV/EBITDA
EV/IC
PE*
P/NAV
FCF yield (%)
Dividend yield (%)
Note: * = Based on HSBC EPS (fully diluted)
Balance sheet summary (HKDm)

Intangible fixed assets
Tangible fixed assets
Current assets
Cash & others
Total assets
Operating liabilities
Gross debt
Net debt
Shareholders funds
Invested capital
1,270
24,041
9,283
6,103
35,764
9,071
11,673
5,570
14,222
19,421
Price relative
35
35
30
30
25
25
20
20
15
15
10
10
2011
Galaxy Entertainment Grou
Ratio, growth and per share analysis

Year to
12/2011a
12/2012e
12/2013e
12/2014e
113.6
157.7
161.6
219.2
219.9
41.5
71.2
63.8
134.8
132.2
16.4
23.4
31.3
33.5
33.2
10.0
11.8
14.9
16.6
16.3
2.4
27.8
25.7
11.2
14.0
10.9
17.0
38.0
1.0
103.4
2.9
37.3
39.8
18.7
16.9
12.7
25.6
1.5
0.0
2,683.0
2.7
39.3
36.3
19.7
17.9
14.3
36.3
-4.3
-0.1
-
2.1
31.6
30.4
18.5
18.2
14.9
47.7
2.7
0.1
1,087.4
0.73
0.73
0.00
3.41
1.69
1.69
0.00
5.09
2.25
2.25
0.00
7.33
2.62
2.62
0.00
9.92
Source: HSBC
Y-o-y % change
Revenue
EBITDA
Operating profit
PBT
HSBC EPS
Ratios (%)
Revenue/IC (x)
ROIC
ROE
ROA
EBITDA margin
Operating profit margin
EBITDA/net interest (x)
Net debt/equity
Net debt/EBITDA (x)
CF from operations/net debt
Per share data (HKD)
EPS reported (fully diluted)
HSBC EPS (fully diluted)
DPS
NAV
2012
Note: price at close of 17 Jan 2013
2013
Rel to HANG SENG INDEX
2014
abc

21 January 2013
Contents
Executive summary
Galaxy remains a great story
Structure and operations

Ownership structure
Operations
Financial estimates
Earnings estimates
Valuation and risks

Reiterate OW(V) rating
Macau maps
Macau casinos
Cotai resorts
Galaxy Cotai resorts
4
4
6
6
7
12
12
15
15
22
23
24
25
Disclosure appendix
28
Disclaimer
31
abc

21 January 2013
Executive summary
Macau market offers stronger growth prospects in 2013
Company to build larger resorts on Cotai sooner than expected
Reiterate OW(V); raise TP to HKD47.59 from HKD39.82 on
earnings estimate changes and review of future resorts
Galaxy remains a great story

Galaxy Entertainment Group (GEG) remains one
of our preferred picks in the Macau gaming space.
We reiterate our Overweight (V) rating on GEG,
and increase our target price to HKD47.59 from
HKD39.82.
The increase in the target price reflects a
combination of earnings estimate changes
(stronger market growth) and changes to future
resort developments (larger resorts coming
sooner), see Macau Gaming, 2013: More to
come, 21 January.
We also roll forward the base year for our
valuation to 2013 from 2012, and maintain our
multiples and discount rates. Our target price
remains based on a weighted average of our sumof-the-parts (SOTP) and discounted cash flow
(DCF) valuations.
Strong share price performance
Galaxys share price has been the best performer

in the Asia gaming space over the past 12 months,
rising 106% vs. a Macau average of 61% and vs.
an average within the Genting Group of -8%.
We believe Galaxys share price will continue to

appreciate strongly in 2013, driven by a
combination of:
Strength and attractiveness of Macau
The 2012 results period was a key inflection point
for Asia gaming, proving the earnings resilience
of Macau casinos, even during times of severe
economic weakness.
We believe Galaxy achieved strong EBITDA
growth of 71% in 2012 despite overall market
weakness due to the success of its Galaxy
Macau resort.
Earnings growth
We forecast GEGs group EBITDA will grow by
23% to HKD12,151m in 2013 from HKD9,845m
in 2012. The significant increase reflects the
strong ongoing contribution from Galaxy Macau,
the general recovery in the Macau market, and the
strength in the high-margin mass gaming segment.
New resort developments
We forecast GEG will develop 18.2m sqft of
additional casino resort space over three phases on
its existing Cotai land bank by the end of 2017
with a total development cost of USD8.7bn
(HKD67.5bn) (see page 10-11).
abc

21 January 2013
Project success
Potential for dividends
GEG has yet to announce a dividend programme

and this largely reflects the fact that it has been in
the development phase of the Galaxy Macau
projects on Cotai. We believe GEG remains in a
strong financial position with the potential to pay
dividends if management so decides.
GEG has achieved significant financial success

with the development of its casino resorts. We
forecast the StarWorld resort will achieve a ROI
of 119% in 2013 vs. an estimated 104% in 2012,
and the Galaxy Macau resort will achieve a ROI
of 49% in 2013 vs. an estimated 38% in 2012.
Scope for expansion outside of Macau
Project funding, cash flow and gearing
While GEG is currently focused on new resort

developments in Macau, we believe the company
has significant opportunities to expand and
diversify its operations.
We forecast GEG will be able to fully fund all

forecast new resort developments via a
combination of existing cash, cash flows from
operations, and new borrowings.
We forecast gearing will peak in 2015 at 10% and
GEG will be in a strong position to accumulate
cash after the expected completion of the Macau
new resort developments in 2017.
We see potential for the development of

complementary non-gaming assets on Hengqin
Island, adjacent to Macau, in three years, as well
as the long-term potential for expansion across
the region.
Figure 1: Macau casino company valuation information

Companies
Galaxy Ent.
Melco Crown
MGM China
Sands China
SJM
Wynn Macau
Total
Bloomberg
Ticker
Pricing
currency
HSBC
Rating
Price
17-Jan
HSBC
TP
Mcap
(USDm)
27 HK
6883 HK
2282 HK
1928 HK
880 HK
1128 HK
HKD
HKD
HKD
HKD
HKD
HKD
OW(V)
OW(V)
OW(V)
N(V)
OW
OW(V)
32.50
50.05
16.30
36.60
20.45
21.85
47.59
66.70
27.34
35.38
27.33
34.70
17,605
10,704
7,989
38,029
14,634
14,620
103,582
___________ EV/EBITDA ____________ _________ Dividend yield __________

2011
2012e
2013e
2011
2012e
2013e
Galaxy Ent.
Melco Crown
MGM China
Sands China
SJM
Wynn Macau
Total
24.7
13.5
12.3
24.7
14.0
13.9
17.2
13.9
11.1
10.9
21.8
12.1
13.9
13.9
11.1
8.8
9.3
16.3
9.4
12.3
11.2
0.0%
0.0%
0.0%
0.0%
3.6%
5.5%
1.5%
0.0%
0.0%
5.0%
3.2%
4.5%
5.5%
3.0%
____________ P/E (x) _____________

2011
2012e
2013e
44.6
35.8
17.0
33.5
21.2
19.7
28.6
19.2
24.7
14.3
30.7
17.9
16.9
20.6
14.4
18.3
12.7
19.6
14.4
14.3
15.6
___________ FCF yield ____________

2011
2012e
2013e
0.0%
0.0%
1.6%
4.1%
5.6%
5.5%
2.8%
0.6%
4.9%
7.4%
2.2%
5.8%
6.5%
4.6%
4.5%
7.8%
9.1%
-0.5%
7.0%
2.8%
5.1%
1.8%
5.3%
7.3%
3.9%
8.4%
2.5%
4.9%
_______ DCF ________

Valuation Weighting
Target
Price
Share
Price
Potential
Return*
47.59
66.70
27.34
35.38
27.33
34.70
32.50
50.05
16.30
36.60
20.45
21.85
46%
33%
73%
0%
38%
64%
42%
Target price calculation
Galaxy Ent.
Melco Crown
MGM China
Sands China
SJM
Wynn Macau
Disc to TP
Bloomberg
Ticker
Currency
27 HK
6883 HK
2282 HK
1928 HK
880 HK
1128 HK
HKD
HKD
HKD
HKD
HKD
HKD
______ SOTP ________

Valuation Weighting
47.11
65.49
26.32
32.31
27.25
34.80
70%
70%
70%
70%
70%
70%
48.70
69.53
29.72
42.55
27.54
34.45
30%
30%
30%
30%
30%
30%
*Potential return equals the percentage difference between the current share price and the target price, plus the forecast dividend yield.
Source: HSBC estimates
abc

21 January 2013
Structure and operations

Gaming accounts for 99% of assets in our SOTP valuation
18.2m sqft of new resorts to be developed on Cotai and
completed by end-2017
Phased opening of new resorts to provide constant growth
catalysts for the rest of the decade
Ownership structure
K Wah International is a residential and

commercial property developer with active
projects in China and Hong Kong.
Galaxy Entertainment Group (GEG) is ultimately

controlled by the Lui Family of Hong Kong,
which has a combined interest of 50.3%.
The Lui Family has substantial interests in hotels

in North America via its controlling position in
the Stanford Hotels Group, which operates 13
hotels under leading brands such as Sheraton,
Hilton, Marriott and Intercontinental.
The Lui Family has a direct interest of 8.6% in

GEG and an indirect interest of 41.7% via the Lui
Family Trust and Hong Kong-listed K Wah
International (173 HK, Not Rated).
Figure 2: Galaxy Entertainment Group ownership structure

36.8%
Lui Family Trust

8.6%
Lui Family
Free Float
4.9%
KWah Int
50.3%
49.7%
Galaxy Entertainment Group

(Listed Hong Kong)
100% (1)
100%
City Club Casinos

(Macau)
StarWorld Casino
(Macau)
Waldo
President
Rio
Grand Waldo
(1) Legal interest; economic interest is lower
Source: Company reports, HSBC estimates
100%
Galaxy Macau casino

(Macau)
100%
Cotai Land bank

(Macau)
25-100%
Construction materials
(China, HK, Macau)
abc

21 January 2013
Operations
Overview
Galaxy Entertainment Group is primarily a

Macau-facing company and we do not see the
company expanding beyond this market. There
are five broad areas of operation:
Construction materials
We forecast GEGs construction activities will
generate 2013 EBITDA of HKD440m, broadly in
line with the expected result in 2012.
We value GEGs construction operations at
HKD3bn, which represents 1% of the companys
SOTP valuation (see Figure 12).
Overview
The construction materials operations were the

original core activities of the company before the
Macau gaming operations were acquired in 2005.
These activities focus on the production and sale
of aggregates and slag, primarily in China.
Casino integrated resorts

We forecast GEGs gaming activities will
generate EBITDA of HKD12.2bn in 2013, up an
estimated 23% from 2012. We value GEGs
gaming operations at HKD219.6bn, which
represents 99% of the company SOTP valuation
(see Figure 12).
Figure 3: Group EBITDA 2011-15e (HKDm)
GEGs gaming activities have evolved greatly

since the company was first awarded the
concession in a joint venture with Las Vegas
Sands. In 2002, GEG arguably had no experience
or competency in the gaming industry, and this
was certainly the case following the split with Las
Vegas Sands.
The companys first casino, Waldo, was and still
is designed as an outsourced business where GEG
is the landlord leasing out space to other parties
that undertake gaming.
In 2006, GEG evolved into a true casino company
with the opening of StarWorld, which, while still
relying heavily on the VIP segment, does operate
mass gaming and provides a ROI equal to that
generated by the best gaming operators in Macau.
With the opening of Galaxy Macau on 15 May
2011, GEG evolved into a full-fledged casino
resort developer/operator on the same level as any
other gaming company in Asia.
StarWorld
We forecast StarWorld will generate EBITDA of
HKD4.0bn in 2013, up 15% from an estimated
HKD3.5bn in 2012. We value StarWorld at
HKD51.9bn, which represents 24% of our
company SOTP valuation (see Figure 12).
Figure 4: Gaming EBITDA mix 2013e
20,000
StarWorld
15,000
33%
10,000
5,000
Galax y
Macau
2011
2012e
Gaming
2013e
2014e
Other
2015e
Phase I
City Clubs
1%
66%
abc

21 January 2013
The StarWorld casino hotel property opened on

19 October 2006 and is located across the road
from Wynn Macau on the Macau Peninsula (see
Figure 18 on page 23).
StarWorld has a total GFA of 1.3m sqft and
includes around 220 gaming tables, 200 slot
machines and 500 hotel rooms.
The property was built at a total development cost
of HKD3,108m (USD400m), and we forecast the
property will generate an EBITDA ROI of 119%
in 2013.
Galaxy Macau Phase I
We forecast Galaxy Macau will generate
EBITDA of HKD8.1bn in 2013, up an estimated
30% on 2012. We value Galaxy Macau at
HKD112.8bn, which represents 53% of our
company valuation.
Galaxy Macau is a mega resort of a similar scale
as City of Dreams, Venetian and Wynn Macau.
The gaming areas are divided into mass, VIP
direct (Jinmen) and VIP junket.
Mass gaming
The mass gaming area takes up the majority of the
ground floor of the resort and occupies a total area
of 400,000 sqft.
VIP gaming
The premium direct, Jinmen, business has a
dedicated exclusive area with around 30 gaming
tables and is located just off the main gaming floor.
The VIP junket rooms have been designed in
consultation with GEGs strategic VIP junket
partners and are equal to anything currently
existing in the Macau market, in our view.
Hotel operations
The Galaxy Macau Phase I resort has three hotels
operating in the two towers with a total room
inventory of 2,200 rooms.
i) Galaxy Macau
Galaxy Macau occupies the single tower on the
right hand side of the resort (closest to Taipa) and
has 1,500 rooms in a modern style similar to
StarWorld in design.
ii) Hotel Okura
Hotel Okura at Galaxy Macau is probably one of
the best in terms of servicing the Japanese market.
Okura is renowned for its service and was
founded on the principle that Okura hotels must
consistently offer the best accommodation, the
best cuisine, and the best service in the Japanese
tradition of attention to detail.
iii) Banyan Tree Macau Hotel
Banyan Tree Macau Hotel at Galaxy Macau
encompasses 256 deluxe suites as well as what is
considered to be the best spa in Macau.
Banyan Tree is famous for bungalows with
infinity pools and as such, Galaxy Macau has
incorporated these rooms in a unique style yet to
be seen in the Macau market.
Other attractions and features
i) Retail
Galaxy Macau has two retail arcades designed to
cater to specific customer groups.
The mass retail outlets are contained in the arcade
running along the eastern side of the property
(below the Galaxy Hotel), near the lobby where
the bus tour groups arrive.
abc

21 January 2013
The high-end retail arcade is located on the

western side of the property beneath Hotel Okura
and the Banyan Tree Hotel.
ii) F&B
Galaxy Macau has over 50 F&B outlets catering
to a broad range of customers.
iii) Pool and outdoor recreation area
The resort fully utilises its podium deck, which
incorporates five resort pools, including the
worlds largest sky wave pool, complete with 80m
of beach with 350 tonnes of sand.
City Clubs
We forecast the City Clubs operation will
generate EBITDA of HKD233m in 2013, which is
slightly above the estimate of HKD0.2bn in 2012.
We value the City Clubs operation at HKD2.3bn,
which represents 1% of our company valuation.
The City Clubs operation involves four casino
properties that operate under Macau-government
approved service agreements.
These service agreements legally allow third party
entities to play a significant role in the operation
of the casinos and earn the vast majority of the
economic value. The casinos are as follows:
i) Waldo
Waldo was opened in July 2004 and is located
across the road from Sands Macau on the main
road Avenida Da Amizade, Peninsula Macau (see
Figure 18 on page 23).
Waldo is primarily a VIP room casino with
different floors and rooms operated by certain
junket operators.
ii) Rio
The Rio casino was opened in February 2006 and
is located behind the Waldo property on Rua Luis
Gonzaga Gomes, Peninsula Macau (see Figure 18
on page 23).
Rio is primarily a VIP room casino with different
floors and rooms operated by certain junket
operators. GEG receives 2-3% of revenue from these
operations, which it reports in its EBITDA line.
iii) President
The President casino was opened in May 2006
and is located further up the Avenida da Amizade
from Waldo and across the road from StarWorld,
Peninsula Macau (see Figure 18 on page 23).
The President hotel and casino is primarily a VIP
room casino with different floors and rooms
operated by certain junket operators.
GEG does not consolidate the revenue of
President and only receives EBITDA equal to 12% of actual gross revenue. The remaining
EBITDA is retained by the VIP room operators.
iv) Grand Waldo
Grand Waldo was opened in May 2006 and was
the first casino property to be developed and
opened on Cotai.
The property is located across the road from
Galaxy Macau (see Figure 18 on page 23).
Grand Waldo has gone through various iterations
as it struggled financially and is now a
combination of mass and VIP room gaming.
GEG consolidates only 50% of the revenue of the
Grand Waldo casino, although the EBITDA
contribution is only 2-3% of revenue.
GEG does not consolidate the revenue of Waldo

and only receives EBITDA equal to 3% of actual
gross revenue. The remaining EBITDA is retained
by the VIP room operators.
abc

21 January 2013
New resort projects
Galaxy Macau Phase III (GMIII)
We forecast GEG will develop 18.2m sqft of

additional casino resort space over three phases on
its existing Cotai land bank by the end of 2017
with a total development cost of USD8.7bn
(HKD67.5bn).
We assume GEG will commence construction on

GMIII in 1H14 and open the property in 1H17.
We assume this project will have a total GFA of
10m sqft and a development cost of USD4.7bn
(HKD37bn).
Galaxy Macau Phase I
We assume this project will have 4,000 hotel

rooms, 600 gaming tables and 2,000 gaming
machines (see Figure 20).
Galaxy Macau Phase I opened in 2011 at a cost of

USD2.1bn (HKD16.4bn) and consists of 5.8m
sqft of GFA. The resort has 2,200 hotel rooms,
500 gaming tables and 1,000 gaming machines.
Galaxy Macau Phase IV (GMIV)

We assume GEG will commence construction on
GMIV in 2H14 and open the property in early
2018. We assume this project will have a total
GFA of 3m sqft and a development cost of
USD1.9bn (HKD14.5bn). We assume this project
will have 1,000 hotel rooms, 400 gaming tables
and 1,000 gaming machines (see Figure 20).
Galaxy Macau Phase II (GMII)

GEG started construction on GMII in March
2012; this is scheduled to open in late 2015 with a
total GFA of 5.2m sqft and a development cost of
USD2.1bn (HKD16.4bn).
We assume this project will have 1,300 hotel
rooms, 400 gaming tables and 1,000 gaming
machines (see Figure 20).
Figure 5: Timing of development of Galaxy Macau phased resorts on Cotai
Start
Galaxy Macau
Phase IV
Start
Complete
Complete
Galaxy Macau
Phase III
Start
Galaxy Macau
Complete
Phase II
Galaxy
Macau
Opens
2011
2012
10
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Completed
Sands Macau
Wynn Macau
Phase I, II
Encore
Total
StarWorld
Grand Lisboa
Altira
Venetian
MGM Macau
Plaza
City of Dreams
Oceanus
Galaxy Macau
Sands C/C
Total/average
Site
area (sqft)
GFA
Plot ratio
Cost psft
(USD)
Apr-04
479,160
1,376,390
2.9x
363
500
437,513 1,987,931
256,952 1,177,302
694,465 3,165,232
Oct-06
73,883 1,022,571
Feb-07
125,141 1,457,895
May-07
56,295 1,022,600
Aug-07 3,136,320 10,400,000
Dec-07
464,645 2,215,490
Aug-08
784,080 3,000,000
Jun-09 1,219,680 5,705,091
Dec-09
86,250
345,000
May-11 1,400,000 5,800,000
Apr-12 1,616,027 13,300,000
10,135,948 48,810,269
4.5x
4.6x
4.6x
13.8x
11.7x
18.2x
3.3x
4.8x
3.8x
4.7x
4.0x
4.3x
8.2x
4.8x
550
488
527
421
554
512
231
564
367
421
484
362
376
378
1,094
575
1,669
430
808
524
2,500
1,250
1,100
2,400
167
2,100
5,000
18,448
Sep-06
Apr-10
Total cost 2013e EBITDA

(USDm)
(USDm)
355
1,383
513
711
158
1,095
785
412
965
104
1,036
701
8,217
ROA
(%)
___________ Tables _____________

VIP
Mass
Total
Slots
Hotel
Rooms
_________ Employees ___________

Casino
Other
Total
71%
77
340
417
1,177
285
2,500
2,500
5,000
83%
119%
88%
30%
44%
63%
37%
40%
62%
49%
14%
45%
199
61
260
100
127
160
150
200
30
190
6
120
140
1,560
234
0
234
180
241
40
450
220
70
235
188
400
400
2,998
433
61
494
280
368
200
600
420
100
425
194
520
540
4,558
1,020
95
1,115
550
785
200
2,181
1,200
200
1,500
1,160
1,000
2,000
13,068
600
414
1,014
505
430
216
2,820
1,174
360
1,400
0
2,200
6,000
16,404
2,500
500
3,000
2,000
2,250
1,150
4,000
3,000
1,250
3,600
1,600
4,000
3,600
31,950
2,500
500
3,000
2,000
2,250
1,150
4,000
3,000
1,250
3,600
400
4,000
5,400
32,550
5,000
1,000
6,000
4,000
4,500
2,300
8,000
6,000
2,500
7,200
2,000
8,000
9,000
64,500
150
250
150
250
400
0
400
1,000
1,000
2,000
2,000
1,000
3,000
2,400
0
2,400
3,000
1,500
4,500
5,400
1,500
6,900
850
1,275
1,275
Yr-3 EBITDA
3Q15
4Q18
1,200,000
300,000
1,500,000
6,088,062
1,522,015
7,610,077
5.1x
5.1x
5.1x
329
526
368
2,000
800
2,800
100,000
1,500,000
15.0x
533
800
1Q16
1,099,560 5,167,932
1,700,000 10,000,000
700,000 3,290,000
3,499,560 18,457,932
650,990 3,580,444
4.7x
5.9x
4.7x
5.3x
5.5x
406
470
564
469
838
2,100
4,700
1,856
8,656
3,000
709
1,298
512
2,519
720
34%
28%
28%
29%
24%
100
200
100
400
0
300
400
300
1,000
0
400
600
400
1,400
0
1,000
2,000
1,000
4,000
2,000
1,300
4,000
1,000
6,300
3,000
2,400
3,600
2,400
8,400
400
4,000
6,000
1,500
11,500
4,200
6,400
9,600
3,900
19,900
4,600
3Q16
2,265,086
6,400,000
2.8x
625
4,000
1,612
40%
200
200
400
1,500
2,000
2,400
5,600
8,000
2Q17
516,912
258,456
775,368
4,000,000
1,600,000
5,600,000
7.7x
6.2x
7.2x
625
875
696
2,500
1,400
3,900
1,195
31%
150
250
400
2,000
3,000
2,400
5,100
7,500
794,979
1,186,182
1,981,160
10,772,165
6,518,825
8,303,272
14,822,097
57,970,551
8.2x
7.0x
7.5x
5.4x
400
440
2,608
3,800
6,408
29,563
780
30%
0%
12%
26%
50
150
200
1,100
100
250
350
2,050
150
400
550
3,150
1,000
1,000
2,000
13,500
1,500
1,500
3,000
21,150
900
2,400
3,300
19,300
2,550
4,000
6,550
38,725
3,450
6,400
9,850
58,025
1Q16
3Q15
2Q17
2Q18
2Q17
>2020
510
926
780
7,753
33%
11
abc
Pending
Studio City
Phase I
Phase II
Total
City of Dreams
Phase III
Galaxy Macau
Phase II
Phase III
Phase IV
Total
Parisian
Wynn Cotai
Phase I&II
MGM Cotai
Phase I
Phase II
Total
SJM Cotai
Phase I
Phase II
Total
Total/average
Date
Opened

21 January 2013
Figure 6: Macau casino resort projects
abc

21 January 2013
Financial estimates
2013 EBITDA revised up 3% on better market outlook
Galaxy Macau Phase II to boost estimated 2015 EBITDA by 10%
All new resort development fully funded via existing cash,
operations and borrowings; no need for additional equity
Earnings estimates
Revenue
We forecast Galaxy will achieve revenue growth
of 16% in 2013 with a slight improvement in
market share as player spend continues to shift to
Cotai resorts.
We revise up our 2013 growth estimate for Macau
gross gaming revenue (GGR) to 13.5% from
12.9%. The stronger growth forecast reflects the
stronger recovery in VIP after the leadership
transition in Beijing; mass gaming continues to
grow in the 25-30% y-o-y range (see Macau
Gaming, 2013: More to come, 21 January).
EBITDA
We increase our 2013 EBITDA forecast by 3% to
HKD12.2bn from HKD11.8bn on the back of
stronger actual growth in the Macau market in
2012 (13.5% vs. an estimated 12.5%) and a
slightly stronger growth forecast in 2013 (13.5%
vs. 12.9%).
Our revised 2013-14 EBITDA estimates are 13%
and 10%, respectively, above consensus.
NPAT
We forecast 2013 NPAT of HKD9.4bn, up 33%
from an estimated HKD7.1bn in 2012.
12
Figure 7: Galaxy income statement (HKDm, except per share data)

2011
Revenue
Gaming
City Clubs
Star World
Galaxy Macau PHI
Galaxy Macau PHII
Total
Construction
Promo & other
Total
Growth
2012e
2013e
2014e
2015e
723 4,340 4,505

22,514 22,669 25,625
16,340 31,925 38,938
0
0
39,577 58,933 69,068
1,574 2,056 2,221
(4,273) (2,755) (3,477)
41,151 58,234 67,812
5,091
26,596
44,248
0
75,934
2,398
(3,708)
74,624
5,748
28,338
48,969
13,146
96,202
2,590
(4,079)
94,713
EBITDA
Gaming
CityClubs
StarWorld
Galaxy Macau
Pre-opening
Total Gaming
C/ materials
Other
Total
Dep & Amort
233
213
209
183
195
2,955 3,484 3,993 3,856 4,367
2,572 6,199 8,058 9,682 10,867
(784)
(301) (483) (573) (640)
5,410 9,395 11,711 13,110 14,659
440
480
518
433
449
(94)
5,749 9,845 12,151 13,590 15,177
(1,248) (2,470) (2,470) (2,470) (2,470)
EBIT
Net interest
Other
PBT
Tax
Minorities
NPAT
Growth
4501
(338)
(1,102)
3,061
(32)
(26)
3,004
234%
7,375
(385)
200
7,190
(58)
(65)
7,067
135%
9,681 11,120 14,161

(335) (285)
(285)
250
350
350
9,596 11,185 14,226
(77)
(89)
(114)
(86) (101)
(128)
9,433 10,995 13,985
33%
17%
27%
4,174
72.8
0.0
0%
4,184
169.1
0.0
0%
4,194
225.2
0.0
0%
Shares on issue
EPS
DPS
Payout ratio
4,204
261.8
0.0
0%
4,214
332.2
0.0
0%
abc

21 January 2013
Cash flow
Balance sheet
We forecast GEG will generate operating free

cash flow of HKD10-15bn annually over the next
three years.
We estimate GEG had a net debt-to-equity ratio of

1% in 2012, and we forecast this will increase to
10% in 2015.
The company has yet to announce a dividend

programme and as such, GEG will commence
accumulating significant cash on completion of
the current development programme.
We forecast all new resort developments will be

fully funded via a combination of existing cash,
cash flows from operations, and borrowings with
no need for additional equity.
Investing cash flows will largely involve the

completion of the resorts by end-2017.
Figure 9: Galaxy balance sheet statement (HKDm)
Given the high degree of success that Galaxy has

achieved in its new resort projects, we believe it is
highly likely that the company will look for other
complementary, non-gaming initiatives on
neighbouring areas such as Hengqin Island.
Figure 8: Galaxy cash flow statement (HKDm)
2011
2012e
2013e
2014e
2015e
C/ assets
Cash
Other
Total
6,103
9,089
9,283
12,011
3,181
15,191
13,672
3,181
16,853
11,195
3,181
14,376
6,564
3,181
9,744
NC Assets
PPE
Intangibles
Other
Total
17,469
1,270
10,908
26,481
20,703
1,221
7,724
29,648
29,849
1,171
7,707
38,727
44,623
1,121
7,690
53,434
64,592
1,072
7,673
73,336
2011
2012e
2013e
2014e
2015e
Total assets
35,764
44,839
55,580
67,810
83,081
4,501
5,698
7,375
8,437
9,681
10,793
11,120
12,282
14,161
15,323
Investing
Capex
Other
Total
C/Liabilities
Borrowings
Other
Total
1,142
10,206
9,993
1,142
10,206
11,348
1,142
11,514
12,655
1,142
12,748
13,890
1,142
14,035
15,177
(4,510)
1,291
(4,913)
(3,233)
14
(3,219)
Financing
Equity
Debt change
Dividends
Other
Total
162
1,840
(17)
(2,002)
1,616
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
NC Liabilities
Borrowings
Other
Total
Total
10,531
1,250
11,128
21,121
11,184
597
11,781
23,128
11,184
597
11,781
24,436
11,184
597
11,781
25,671
11,184
597
11,781
26,958
Net assets
Debt/Assets
Net Debt/Equity
14,643
33%
38%
21,711
27%
1%
31,144
22%
-4%
42,139
18%
3%
56,123
15%
10%
2,402
4,369
22
6,793
5,218
6,793
0
12,011
1,662
12,011
0
13,672
(2,477)
13,672
0
11,195
(4,631)
11,195
0
6,564
EBIT
Operating CF
Net change
Cash beginning
Adjustments
Cash end
(9,146) (14,774) (19,969)

14
14
14
(9,132) (14,759) (19,955)
13
abc

21 January 2013
Share capital
Dividend policy
We forecast GEG had 4.2bn shares outstanding as

at the end of 2012. Key equity issues include:
GEG has yet to announce a dividend programme

and this largely reflects the fact that it has been in
the development phase of the Galaxy Macau
projects on Cotai.
2005: issue of 1,994m new shares by way of

restructuring and acquisition of Galaxy SA
2007: issue of 640m shares by way of a
placement to Permira
2011: issue of 183m new shares from
conversion of convertible debt in 1H11
Figure 10: Galaxy shares in issue (m)
2009
2010
2011
2012 2013e 2014e 2015e
Beginning
New issue
Buy back
End of year
3,938 3,942 3,954 4,174 4,184 4,194 4,204

3
13 230
10
10
10
10
0
0
0
0
0
0
0
3,942 3,954 4,174 4,184 4,194 4,204 4,214
WA
3,938 3,945 4,125 4,179 4,189 4,199 4,209
14
We assume that GEG will not commence a

dividend programme within the forecast period,
although we note the strong financial position of
the group and its potential to pay dividends in the
future if management so decides.
We expect the company to announce further resort
developments in the near term and suggest excess
cash flow will be dedicated to such projects.
In the absence of any short-term resort
announcements, we suspect the company
will commence the repayment of existing
bank borrowings.
abc

21 January 2013
Valuation and risks

Raise TP to HKD47.59 from HKD39.82 on earnings estimate
changes, review of future resorts and rolling forward of the base

year for our valuation
New resorts account for 25% of SOTP valuation
Reiterate OW(V); remains a preferred Macau pick
Reiterate OW(V) rating
Our target price remains based on a weighted

average of SOTP and DCF valuations.
Raise target price to HKD47.59

We reiterate our Overweight (V) rating on GEG
and have increased our target price by 20% to
HKD47.59/share (from HKD39.82/share).
The increase in target price primarily reflects our
earnings estimate changes outlined on page 12,
the rolling forward of the base year for our
valuation to 2013 (from 2012), as well as our
updated assumptions for the new casino resort
projects (outlined on page 10).
Figure 11: Galaxy target price and share price (HKD)
60
50
47. 11
48.70
47.59
40
32. 50
30
20
10
0
SOP
DCF
Source: HSBC estimates; Priced as of 17 January 2013
TP
Share price
Given the relative uncertainty surrounding long-term

forecasts in Macau (licence expiry, etc.), we give a
30% weight to our DCF value of HKD48.70/share
(previously HKD45.91/share) and a 70% weight to
our SOTP value of HKD47.11/share (previously
HKD37.20/share), or c21.1x 2013e earnings.
Changes to our valuation assumptions

We make the following changes that have caused
the increase in our target price.
We revise our earnings estimate slightly for
2013 (page 12) and this impacts the SOTP
and DCF valuations outlined in Figure 12-13.
We now forecast Galaxy Macau Phase III will
open in 2017 vs. 2018 and will be a much
larger development, encompassing what we
previously referred to as Phase IV.
We assume Galaxy Macau Phase IV opens in
2018, which marks the final piece of the Cotai
build. We previously referred to this project as
Phase V and did not include this in either our
discrete forecasts or valuation, as we assumed
this project would be completed after 2020,
which is outside of our forecast period.
15
abc

21 January 2013
We roll forward the base year for our

valuation to 2013 from 2012 and have
maintained our multiples and discount rates.
We continue to apply a 10x EBITDA multiple to
the earnings estimates of new resorts in their third
year of operation (Figure 12).
Overweight (V) rating
Under our research model, for stocks with a

volatility indicator, the Neutral band is 10ppts
above and below the hurdle rate for Hong Kong
stocks of 8.5%. Our target price implies a potential
return of 46% (including no forecast dividend
yield), above the Neutral band; therefore, we are
reiterating our Overweight (V) rating. Potential

return equals the percentage difference between the
current share price and the target price, including
the forecast dividend yield when indicated.
Risks to our rating and estimates

Generic risks for Macau casino concessionaires
include unexpected changes in government
gaming policy or economic changes in China that
can impair customer visitation and expenditure.
Business concentration risk also exists, given all
of the companys operations are largely centred in
Macau SAR.
Figure 12: Galaxy sum-of-the-parts (SOTP) valuation (HKDm, except per share data)
Owned
StarWorld
Galaxy Macau
Total
City Clubs
Total current gaming
Cotai Projects
Phase II (2015)
Gross value (2017)
Develop cost
Net value
Disc. Net value
Phase III (2017)
Gross value (2019)
Develop cost
Net value
Disc. Net value
Phase IV (2018)
Gross value (2020)
Develop cost
Net value
Disc. Net value
Total
Total gaming
Construction mat.
Corporate
Gross Assets
Less:
Land premium
License renewal
Less: net debt
Borrowings
Cash
Net assets
Shares in issue
Value per share
16
EBITDA
(x)
Value
Share
3,993
8,058
12,051
233
12,284
13.0x
14.0x
13.7x
10.0x
13.6x
51,911
112,808
164,718
2,327
167,046
24%
53%
77%
1.1%
78%
5,514
10.0x
55,144
-16,338
38,806
22,020
10%
81,821
-36,566
45,255
20,471
10%
39,810
-14,782
25,028
10,109
5%
52,600
219,645
3,082
-8,016
214,711
24%
102%
1%
-4%
100%
8,182
3,981
440
-573
10.0x
10.0x
7.0x
14.0x
-850
-16,900
12,326
12,011
196,647
4,174
HKD47.11
abc

21 January 2013
We have briefly discussed the issue with

management and the company stated that it is
cooperating with regulators with respect to
this matter.
i) Chinas crackdown on corruption

Chinas President in-waiting, Xi Jinping appears
committed to the two key themes of anticorruption and reform.
We believe this matter may reflect issues

underway in Taiwan:
While it is difficult to assess the potential impact

on Macau in the short term, if any, we believe
investors will continue to focus on this issue as a
potential area of risk for Macau generally.
a) RMB-TWD convertibility
The second plenary session of the 18th Central

Commission for Discipline Inspection of the
Communist Party of China is expected to convene
in mid-January. We believe there is a high
likelihood that a new wave of anti-corruption
campaigns could be launched.
ii) Taiwan reviewing money flows
On 10-11 January, Taiwans government announced
that it was investigating a Hong Kong firm for
allegedly moving large amounts of money on behalf
of players from Taiwan to Macau, circumventing
strict foreign exchange regulations.
We believe Taiwans government is on the cusp

of introducing RMB-TWD clearing and
convertibility through the domestic banking
system. These services have not been available
through the formal banking system because of
cross-Strait political/regulatory blockages.
There is a substantial existing informal industry
for money changing and remittance services
between Taiwan and China.
The current investigation into Melco Crown may
well be part of the regulatory changes in the
broader banking system.
b) Establishment of gaming regulations
According to the MacauDaily Times, Taiwans

government may have frozen accounts of a
subsidiary of Melco Crown (6883 HK,
HKD50.05, OW(V), TP HKD66.70).
In July 2012, the residents of Matsu Island in

Taiwan passed a referendum for the operation of
casinos on their island.
Figure 13: Galaxy DCF valuation (HKDm, except per share data)
2013e
2014e
2015e
2016e
2017e
2018e
2019e
2020e
EBITDA
Less: capex
Less: land premium
Op Free CF
Income Tax
Total
12,151
-9,146
-425
2,580
-77
2,503
13,590
-14,774
16,631
-19,969
20,618
-17,849
22,793
-5,773
27,985
-1,452
34,850
-1,740
40,921
-1,740
-1,184
-89
-1,273
-3,338
-114
-3,451
2,769
-146
2,623
17,020
-163
16,857
26,533
-205
26,329
33,110
-260
32,850
39,181
-308
38,872
Cashflows
Terminal value
Total
License renewal fee
Less:
Borrowings
Cash
Net
Net Assets
Shares in issue (m)
Value per share
HKD
60,361
160,139
220,501
-16,900
WACC
TG
12.0%
2.0%
12,326
12,011
-315
203,286
4,174
48.70
17
abc

21 January 2013
Since the referendum, Taiwans central

government and Matsu have been working on the
establishment of gaming regulations, which we
believe should be completed by mid-2014.
These new gaming regulations will likely require
a review of existing expenditure patterns of
Taiwanese citizens at neighbouring casino centres
such as Macau.
Therefore, the current investigation into money
flows with Melco Crown may well have been
identified from such an industry review.
We note that any large Macau casino that operates
premium direct gaming operations with Taiwan
citizens as customers may have similar
mechanisms for moving players money from
Taiwan to Macau. We also suggest that any of the
large Macau junket operators that have Taiwanese
players may also utilise similar strategies for
moving money from Taiwan. As such, any
investigation into Melco Crown may ultimately
involve other entities.
Valuation methodology
Our target price for GEG is based on a weighted
average (70/30) of SOTP and DCF valuations.
Key points:
Sum-of-the-parts (SOTP) valuation
Gaming stocks globally are regularly valued

based on multiples of operational EBITDA, which
places value on short-term earnings.
In addition to the valuation of existing operations,
we incorporate explicit forecasts for new
projects, as well as license renewal fees into our
SOTP valuations.
We ascribe different valuation multiples to
different areas of Macau for the valuation of
existing casino resorts, as we believe they will
provide different earnings growth in the future.
18
We ascribe a 14x multiple to Cotai-based

properties, as we believe the Cotai area will
achieve the highest relative growth in the market.
We ascribe a 13x multiple to properties located in
the Greater Lisboa area of the Macau Peninsula.
We ascribe a 12x multiple to casino resorts
located out of the above two major areas.
The valuation multiples we ascribe to Macau
casino resorts are slightly higher than those we
apply for the valuation of other casino resorts in
other parts of Asia, including Singapore (12.5x)
and Manila in the Philippines (10x).
The higher multiple applied for Macau reflects the
higher growth rate expected vs. regional peers.
While Macau historically has been viewed as
having higher political risk vs. markets such as
Singapore, we believe this is abating.
DCF valuation
DCF enables the assessment of long-term issues,

although such forecasts are more challenging
given uncertainty surrounding government policy,
future expansion, new developments, license
renewal and gaming taxes.
All six Macau companies under our coverage are
trading at a discount to DCF of between 14% and
45%. We believe this inherently reflects the
uncertainty surrounding future cash flows relating
to future market growth, the ability to undertake
expansion, the issue surrounding perpetuity
(license renewal) and gaming taxes.
Key valuation assumptions:
Our target price for GEG and the other five
Macau casino companies are based on the
following broad assumptions.
Continuity of license after 2020-22 with a
one-off license renewal fee payable in 2019 in
return for a further 20 years of operation
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21 January 2013
No change to gaming taxation
Concessionaire renewal assumptions
No imposition of corporate taxation on

Macau-based gaming businesses
GEGs gaming concession expires in June 2022.
Completion of the second wave of operation

expansion for all concessionaires on Cotai
No material fallout from the various US
authority investigations
Figure 14: Macau casino EBITDA multiples
Sands CC
14.0x
Galax y Macau
14.0x
City of Dreams
14.0x
Plaza
14.0x
Venetian
14.0x
Wy nn Macau
13.0x
MGM Macau
13.0x
Grand Lisboa
13.0x
StarWorld
13.0x
Sands Macau
Altira
12.0x
5. 0x
10. 0x
15.0x
Figure 15: Asia casino EBITDA multiples
M acau Cotai
14.0x
Macau Peninsula
13.0x
Macau other
12.0x
Singapore
10.0x
8.0x
5.0x
Pros: The benefit of this approach is the simplicity

it does not upset any stakeholder.
10.0x
The intrinsic financial value of a concessionaire is

evident through both the market capitalisation of
the listed Macau stocks and the price at which
concessionaires sold sub-concessions.
SJM was the first concessionaire to sell its subconcession to Pansy Ho and MGM for USD200m.
Wynn Macau later sold its sub-concession in 2006
for USD900m to Melco Crown.
11.0x
Philippines
0.0x
We provide the following four scenarios covering

the concession renewal process.
Cons: The government will clearly miss out on

the opportunity to capture a portion of the excess
profits currently accruing to concessionaires.
Malay sia
Renewal scenarios
This assumes the government simply extends the

current situation with no imposition of a renewal
fee or change to the gaming tax rate.
10.0x
0.0x
Macaus government has yet to clearly provide a

framework for the casino market after the expiry
of the current concessions. However, it has stated
that negotiations surrounding the concessions will
commence in December 2017.
Scenario 1: Extend with no changes
12.0x
Oceanus
The date of expiry is the same as that for the other

concessionaires such as Sands China Limited,
Wynn Macau and Melco Crown, and two years
after SJM and MGM (in 2020).
15.0x
This market structure will also not address current

market inefficiencies such as the existence of
junket operators that under-report gaming revenue
and operate casinos themselves under a service
agreement arrangement.
19
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21 January 2013
Scenario 2: Extend for 20 years with a

one-off fee
We have adopted this scenario for the valuation of
Sands China Limited, Galaxy Entertainment
Group and Wynn Macau Limited.
This scenario assumes the current market
structure continues with a one-off levy imposed
on each concessionaire.
We believe there are two potential approaches
under the one-off fee scenario:
operated (or intended to be operated) by each

concessionaire. As such, larger concessionaires
will pay more than those operators with fewer
gaming devices.
Figure 17 outlines our assumptions for the
assumed fee that GEG will pay under this
scenario based on the projected number of devices
in operation in 2017.
Figure 17: Estimate for concession renewal fee (USDm)
Table
EGM
A: Based on Melco Crowns acquisition

Under this approach, each concessionaire would
pay the same fee, which is based on the Melco
Crown acquisition, as this was the last time a
gaming concession was acquired.
As background, Melco Crown paid USD900m in
2006 for the sub-concession from Wynn Macau.
In 2006, this amount equated to 13% of total
Macau reported GGR (Figure 16).
Fee / device
2000000
50000
Galaxy Macau
Other Cotai
StarWorld
Service Contracts
Total
Devices
Tables
400
800
270
150
1620
EGM
1500
4000
250
599
6349
Galaxy Macau
Other Cotai
StarWorld
Service Contracts
Total
Fee payable
Tables
800
1600
540
300
3240
EGM
75
200
13
30
317
Total
875
1800
553
330
3557
Based on this ratio, the government could state

that when GGR in the Macau market increases to
an estimated USD83.0bn in 2018, then each
concessionaire will pay USD10.9bn (Figure 16).
Figure 16: Macau licence renewal fee scenario (USDm)
GGR (USDm)
Concessionaire price
Ratio
2004
2006
2018e
5021
200
4.0%
6,875
900
13.1%
82,983
10,863
13.1%
The problem with this approach is that the current

Macau concessionaires each operate businesses of
different sizes and as such, the above approach
will not be equitable to smaller operators.
B: Based on the number of gaming devices operated
Under this scenario, we assume the renewal levy
will be determined on an equitable basis and be
proportional to the extent of gaming devices
20
Pros: The benefits of this scenario include the

continuation of the current market structure
involving all existing stakeholders. This structure
also captures a portion of the above-normal profits
earned by concessionaires.
This scenario may also assist in correcting the
abnormally of service agreements, which have
increased the number of actual casino operators
beyond the initial intention of three companies.
The imposition of a high fee per gaming device
could place significant pressure on service
agreement operations, where the concessionaire
earns little from these operations.
Cons: The lack of an open market bid arguably
means that the government may not secure an
optimal market price for the concessions.
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21 January 2013
Scenario 3: Continuation plus increase in tax

This scenario assumes the continuation of the
current market structure with existing
concessionaires under a higher tax structure.
Pros: The benefit of this scenario is the simplicity.
Vet market operators

The government could produce a select list of
market operators and as such, remove certain
market operators who may be associated with
informal activities.
It is the same situation as Scenario 1 with the

benefit of potentially extracting additional abovenormal profits from concessionaires.
Cons: Rebidding the entire market will likely

disrupt casino operations, creating a period of
inactivity when there is a switch from one
concessionaire to another.
Cons: The potential drawbacks include slower

market revenue growth. We believe there is risk
that junket operators will increase the extent of
OTT-UTT under a higher taxation environment.
This will likely impair taxation receipts to the

government, as well as create instability in
local employment.
The government could offset these risks by

auditing every junket operator as in the proposed
structure in Singapore.
Macau has little vacant land and as such, the

existing concessionaires control all the properties
in Macau or at least will do by the time the
concessions formally expire in 2020-22.
Scenario 4: Open the market and enable all

companies to bid for concessions
This scenario assumes that the government decides
to end the current market structure and start over
with an open market bidding programme.
Therefore, re-tendering would also potentially

create uncertainty in terms of how a new
casino operator secures tenancy within existing
casino properties.
Pros: The benefits of this approach

Maximise revenue to the government
The bidding tension created by an open tender
will likely maximise the amount of money paid
upfront to the government.
21

21 January 2013
Macau maps
22
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21 January 2013
Macau casinos
Figure 18: Location of Macau casino resorts
Zhuhai PRC
Zhu
h ai
PR
Reservoir
2
20
5
3
18
16
1
15
2
Nam Van
Lake
Ferry
Terminal
21
4
8
1
7
13
Secondary
Casino
Activity
Cluster
17
5
1
1
19
Friendship Bridge
ed
Prop os
Secondary
Casino
Activity
Cluster
B
l
Tu nn e
e
id g
) Br
Br id g e
-Taip a
n
(V a
r
Harb ou
Cr oss
M ac au
n
Wa
Sai
Primary
Casino
Activity
Cluster
SJM
Proposed Zhuhai-HK-Macau Bridge
Lisboa
1.
Sands Macau
2.
3.
Jai Alai
Kam Pek
4.
5.
6.
7.
Macau Palace
Casino Jimei
Lan Kwai Fong
Diamond
2.
3.
4.
Venetian Macau
Four Seasons
Cotai Central
5.
Parisian (PD)
8.
9.
10.
11.
12
13.
14.
15.
16.
17.
Casa Real
Marina
Greek Mythology
Grandview
Taipa
18.
19.
20.
21.
Grand Lisboa
Le Arc
Ponte 16
Oceanus
22.
Cotai Project (PD)
1.
2.
Pharaoh's
Golden Dragon
Fortuna
Grand Emperor
Babylon
Galaxy Entertainment
1.
Waldo
2.
3.
RIO
President
4.
Grand Waldo
5.
6.
StarWorld
Galaxy Macau
7.
Galaxy Macau II (UD)
8.
Galaxy Macau III-IV

(PD)
Wynn Macau
1.
2.
3.
4.
Altira Macau
City of Dreams
Taipa Square
Studio City (UD)
1.
2.
MGM Macau
MGM Cotai (UD)
MGM China
Taipa
Wynn Macau
Wynn Cotai (UD)
Melco Crown Entertainment
Pac On
Terminal
10
12
11
Sands China
1.
Ma
uA
ca
o rt
irp
UD = Under development
PD= Pre Development/Planning
9
6
4
2
3
8
Primary
Casino
Activity Lotus Bridge
Cluster
Green
Space
Golf Course
(Harrahs)
Go
Cart
4
7
8
2
Shun Tak
Zhuhai PRC
(Hengqin Island)
Sports
Sports
Dome
22
Power Station
Theme
Park
Sites
14,15,16
Reservoir
Coloane
China Sea
Source: HSBC
23
24

21 January 2013
Cotai resorts
Figure 19: Location of Macau casino resorts on Cotai
Taipa
Currently under development
u
ca
Ma
Macau Jockey Club
Ma ri na
Ga laxy Macau
II
Venetia n
Zhuhai PRC
(Hengqin Island)
Cotai MGM
Central
SJM
Pa risian
Studio City
Currently under development
W ynn
Cotai
III
Green
Sp ace
rt
rp o
City of
Dreams
IV
Pl aza
Ai
Sites Shun
7&8 Tak
Lotus Bridge
Power Station
Sports
Dome
Theme
Park
Golf Course
(Caesars)
Reservoir
Coloane
China Sea
Source: HSBC
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21 January 2013
Galaxy Cotai resorts

Figure 20: Location of Galaxy casino resorts
Phase I
Phase II
Phase IV
Venetian
Grand Waldo
Phase II
Phase III
China Sea
Source: HSBC
25

21 January 2013
Notes
26
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21 January 2013
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Notes
27

21 January 2013
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Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the
opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their
personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Sean Monaghan
Important disclosures
Stock ratings and basis for financial analysis
HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which
depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations.
Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities
based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon;
and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative,
technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating.
HSBC has assigned ratings for its long-term investment opportunities as described below.
This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when
HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at
www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this
website.
HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's
existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating
systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research
report. In addition, because research reports contain more complete information concerning the analysts' views, investors
should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not
be used or relied on in isolation as investment advice.
Rating definitions for long-term investment opportunities

Stock ratings
HSBC assigns ratings to its stocks in this sector on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stocks domestic or, as appropriate,
regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock
to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the
potential return, which equals the percentage difference between the current share price and the target price, including the
forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months
(or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be
expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points
for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility
status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review,
expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily
triggering a rating change.
28
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21 January 2013
*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12
months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However,
stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past
month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating,
however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
Rating distribution for long-term investment opportunities

As of 18 January 2013, the distribution of all ratings published is as follows:
Overweight (Buy)
46%
(28% of these provided with Investment Banking Services)
Neutral (Hold)
37%
Underweight (Sell)
17%
Share price and rating changes for long-term investment opportunities

Galaxy Entertainment Grou (0027.HK) Share Price performance HKD Vs HSBC
Recommendation & price target history
rating history
From
N/A
Target Price
40
Price 1
Price 2
Price 3
Price 4
Price 5
Price 6
Price 7
Price 8
Price 9
35
30
25
20
15
10
5
To
Date
Overweight (V)
Value
30 May 2011
Date
19.37
30.50
31.85
33.35
33.86
32.00
35.89
38.64
39.82
30 May 2011
16 January 2012
16 March 2012
23 April 2012
26 April 2012
10 June 2012
27 August 2012
12 September 2012
25 November 2012
Source: HSBC
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Source: HSBC
29
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21 January 2013
HSBC & Analyst disclosures

Disclosure checklist
Company
GALAXY ENTERTAINMENT GROU
Ticker
Recent price
Price Date
Disclosure
0027.HK
32.50
17-Jan-2013
4, 5, 6, 7, 11
Source: HSBC
1
2
3
4
5
6
7
8
9
10
11
HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months.
HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next
3 months.
At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company.
As of 31 December 2012 HSBC beneficially owned 1% or more of a class of common equity securities of this company.
As of 30 November 2012, this company was a client of HSBC or had during the preceding 12 month period been a client
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For disclosures in respect of any company mentioned in this report, please see the most recently published report on that
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* HSBC Legal Entities are listed in the Disclaimer below.
Additional disclosures
1
2
3
30
This report is dated as at 21 January 2013.

All market data included in this report are dated as at close 17 January 2013, unless otherwise indicated in the report.
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1% or more of the total capital of the subject companies securities in the market for the following Company(ies)
:GALAXY ENTERTAINMENT GROU

21 January 2013
abc
Disclaimer
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solicitation of an offer to sell or subscribe for, any financial product or instrument (including, without limitation, any currencies, securities, commodities or other financial instruments).
Copyright 2013, The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch, ALL RIGHTS RESERVED. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written
permission of The Hongkong and Shanghai Banking Corporation Limited Singapore Branch. MICA (P) 038/04/2012, MICA (P) 063/04/2012 and MICA (P) 110/01/2013
[356636]
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abc
Global Consumer Brands & Retail

Research Team
Europe
Asia
Consumer Brands & Retail

Antoine Belge
Head of Consumer Brands and Retail Equity Research
+33 1 56 52 43 47
antoine.belge@hsbc.com

Erwan Rambourg
Head of Consumer Brands and Retail Equity Research
+852 2996 6572
erwanrambourg@hsbc.com.hk
Sophie Dargnies
Analyst
+33 1 56 52 43 48
Chris Zee
Analyst
+852 2822 2912
chriscmzee@hsbc.com.hk
Christopher Leung
Analyst
+852 2996 6531
christopher.k.leung@hsbc.com.hk
Lina Yan
Analyst
+852 2822 4344
linayjyan@hsbc.com.hk
Catherine Chao
Analyst
+852 2996 6570
catherinefchao@hsbc.com.hk
Karen Choi
Analyst
+822 3706 8781
karen.choi@kr.hsbc.com
Jena Han
Associate
+822 3706 8772
jenahan@kr.hsbc.com
Sean Monaghan
Analyst
+65 6658 0610
seanmonaghan@hsbc.com.sg
Cedric Besnard
Analyst
+33 1 56 52 43 66
sophie.dargnies@hsbc.com
cedric.besnard@hsbc.com
Florence Dohan
Analyst
+44 207 992 4647
florence.dohan@hsbc.com
Jrme Samuel
Analyst
+33 1 56 52 44 23
jerome.samuel@hsbc.com
Emmanuelle Vigneron
Analyst
+33 1 56 52 43 19
emmanuelle.vigneron@hsbc.com
Paul Rossington
Analyst
+44 20 7991 6734
Leisure
Lena Thakkar
Analyst
+44 20 7991 3448
paul.rossington@hsbcib.com
lena.thakkar@hsbcib.com
CEEMEA
Michele Olivier
Analyst
+27 11 6764208
michele.olivier@za.hsbc.com
Specialist Sales
Lynn Raphael
+44 20 7991 1331
David Harrington
+44 20 7991 5389
lynn.raphael@hsbcib.com
Permada (Mada) Darmono

Analyst
+65 6658 0613
permada.w.darmono@hsbc.com.sg
Thilan Wickramasinghe
Analyst
+65 6658 0609
thilanw@hsbc.com.sg
Abel Lee
Analyst
+8862 6631 2866
abelchlee@hsbc.com.tw
Amit Sachdeva
Analyst
+91 22 2268 1240
amit1sachdeva@hsbc.co.in
North & Latin America

david.harrington@hsbcib.com
Consumer & Retail

Francisco J Chevez
Analyst, Latin America & US
+1 212 525 5350
francisco.j.chevez@us.hsbc.com
Stewart Ragar
Analyst
+1 212 525 3460
stewart.h.ragar@us.hsbc.com
Manisha A Chaudhry
Associate, Latin America & US
+1 212 525 3035
manisha.a.chaudhry@us.hsbc.com
Beverages
Lauren Torres
Analyst, Global Beverages
+1 212 525 6972
lauren.torres@us.hsbc.com
James Watson
Analyst, Global Beverages
+1 212 525 4905
james.c.watson@us.hsbc.com
Food & Agricultural Products
Pedro Herrera
Analyst, Global Food & Agricultural Products
+1 212 525 5126
pedro.herrera@us.hsbc.com
Ravi Jain
Analyst, Global Food & Agricultural Products
+1 212 525 3442
ravijain@us.hsbc.com
Diego T Maia
Analyst, Food & Agricultural Products, Brazil
+55 11 33718192
diego.t.maia@hsbc.com.br
Household Durables
Francisco Suarez
Analyst, Household Durables, Mexico
+52 55 5721 2173
francisco.suarez@hsbc.com.mx
Berenice Munoz
Associate, Household Durables, Mexico
+52 55 5721 5623

HSBC Research

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abc

Consumer & Retail

Equity Hong Kong

Galaxy Entertainment (27 HK)

Note: Potential return equals the percentage

Company to complete all Cotai resorts by end-2017, and

Note: (V) = volatile (please see disclosure appendix)

MICA (P) 038/04/2012

HANG SENG INDEX

Enterprise value (HKDm)

Galaxy Entertainment (27 HK)

Financials & valuation

Key forecast drivers

Profit & loss summary (HKDm)

Cash flow summary (HKDm)

Note: * = Based on HSBC EPS (fully diluted)

Balance sheet summary (HKDm)

Galaxy Entertainment Grou

Ratio, growth and per share analysis

Note: price at close of 17 Jan 2013

Galaxy Entertainment (27 HK)

Structure and operations

Valuation and risks

Galaxy Entertainment (27 HK)

earnings estimate changes and review of future resorts

Galaxy remains a great story

Galaxys share price has been the best performer

We believe Galaxys share price will continue to

Galaxy Entertainment (27 HK)

Potential for dividends

GEG has yet to announce a dividend programme

GEG has achieved significant financial success

Scope for expansion outside of Macau

Project funding, cash flow and gearing

While GEG is currently focused on new resort

We forecast GEG will be able to fully fund all

We see potential for the development of

Figure 1: Macau casino company valuation information

___________ EV/EBITDA ____________ _________ Dividend yield __________

____________ P/E (x) _____________

___________ FCF yield ____________

_______ DCF ________

Target price calculation

______ SOTP ________

Galaxy Entertainment (27 HK)

Structure and operations

catalysts for the rest of the decade

K Wah International is a residential and

Galaxy Entertainment Group (GEG) is ultimately

The Lui Family has substantial interests in hotels

The Lui Family has a direct interest of 8.6% in

Figure 2: Galaxy Entertainment Group ownership structure

Lui Family Trust

Galaxy Entertainment Group

City Club Casinos

(1) Legal interest; economic interest is lower

Source: Company reports, HSBC estimates

Galaxy Macau casino

Cotai Land bank

Galaxy Entertainment (27 HK)

Galaxy Entertainment Group is primarily a

The construction materials operations were the

Casino integrated resorts

___ EV/EBITDA _ Dividend yield ______

P/E (x) _

_ FCF yield __

_ DCF __

SOTP __

_ Tables ___

_ Employees ___