High-rollers return in droves, with lady luck on their side Media Man Int

High-rollers return in droves, with lady luck on their side - 16th February 2018

Profiles

The bad news for Star is that in the six months to December 31, the tables have been kinder to the punters. Photo: Greg McKenzie

by Elizabeth Knight

It was almost a year and a half ago that Australian casinos were sent into a tailspin following the arrests by Chinese authorities of several Crown Entertainment staff. Chinese VIP visitors to Crown and The Star plunged as did the revenue they funnelled into the casinos.

The result posted by Star on Friday is the clearest evidence yet that the heavy-hitting international punters are back - surpassing the numbers seen before the Chinese crackdown on gambling.

The strong rebound in the international VIP market must be additionally good news for James Packer’s Crown Resorts, which is investing billions to build a casino at Barangaroo in Sydney tailored to big-betting international players.

We are yet to see whether Crown has experienced the same level of recovery in VIP but there are certainly expectations that it will see an improvement when it reports its half-year results next week.

The bad news for Star is that in the six months to December 31, the tables have been kinder to the punters - the percentage of turnover retained by the casino, called the win rate, was "abnormally low".

Fundamentally, the win rate shouldn’t affect the quality of the result because win rates move around and are beyond the control of the casino. In any financial period, the casino can be lucky or unlucky.

Investors focus on a theoretical win rate - which irons out these gyrations.

But the effect of the lower win rate for Star was particularly stark. Instead of reporting a net profit up 12.4 per cent, which is where it would have been if the win rate were normalised, the company posted a large decline in earnings.

All told, after accounting for a poor win rate and negative one-offs relating to debt refinancing, the bottom-line result came in 76.8 per cent lower than the previous corresponding half.

It is fair to say that the market was surprised at the extent to which VIPs rebounded. On a normalised basis, it was up more than 47 per cent and less reliant on China.

But the growth in VIP earnings came at a cost - higher commissions, taxes and rebates.

“The international VIP rebate business has returned to previous levels of activity, enhanced by the diversification strategy we devised and started executing against well before the North Asian market disruption 16 months ago," according to Star’s chief executive, Matt Bekier.

"We continue to moderate the reliance on North Asian visitation, and our expansion into other international markets has been supported by the bolstering of sales teams to cover a larger and more balanced footprint."

Overall it was a good result and one that reflects the management’s successful plan to upgrade its facilities in Sydney and Queensland.

Having said that, the result from Sydney's Star Casino was softer than investors had been expecting. And Bekier warned that these softer conditions had continued in the first six weeks of the 2018 calendar year.

Star’s share price, which had been priced for perfection, was pummelled down more than 5 per cent in Friday morning trade.

Star now will be punting that Chinese New Year, which began on Friday, will enable it to recover its status as sharemarket darling. It’s the biggest time of the year for the casino as it attracts a big hit of Chinese locals to the tables.

But the company is hedging its bets.

In its outlook statement it noted its full-year results may be affected by several factors "(which may be material in nature) including general macro-economic conditions, potential hold and win rate volatility in the private gaming room and international VIP rebate business, level of debt or provisions, success of the group’s marketing programs and any uncertainty related to the regulatory environment".

(The Sydney Morning Herald)