Star Entertainment shines despite China VIP exodus - 23rd August 2017

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by Elizabeth Knight

The fallout from the Chinese arrests of Crown Resorts staff last October continues to be felt by the Australian casino operators as The Star Entertainment Group reported an 11 per cent fall in normalised 2017 net profit due to the collapse of the Chinese VIP market.

Crown Resorts experienced an even bigger decline it its 2017 profit as heavy-hitting gamblers from China virtually boycotted Australia in response to a crackdown from their government on corruption and capital outflows.

While the normalised profit from The Star was a little below analysts expectations, this result was more than offset by higher than normal 'win rate' for the casino which resulted in its statutory performance rising a hefty 36 per cent to $264.4 million and a 23 per cent boost in the dividend for the year.

Coupled with a better second half the market responded positively to the full year result, pushing the share price up around 5 per cent by lunchtime Wednesday.

In the wake of the China arrests, Australia's casinos are now trying to overhaul their business models - marketing more heavily into other Asian markets and to premium mass markets.

"The North Asian disruption is lingering," The Star's chief executive Matt Bekier said on Wednesday.

"We dropped a long way in November and December and it's going to take a little while to climb out of that hole. We've been able to mitigate some of that through diversification."

Annual turnover from overseas visitors dropped by almost 20 per cent.

But the domestic business staged a reasonable recovery in the second half with revenues up 6 per cent on the previous corresponding period in Sydney and up 9.9 per cent on the Gold Coast.

The first half had been significantly affected by disruption from building works and are now largely complete.

The improvement in domestic market largely reflects the investment in both the gaming facilities and non-gaming offers as the company continues to upgrade its properties.

The company said that trading levels in the early first half of 2018 were exhibiting domestic gaming growth relative to the same period last year but noted that revenues had been impacted by lower domestic table hold rates.

It gave no further specific guidance other than a warning that the 2018 result may be impacted by several factors (that may be material in nature) including general macroeconomic conditions and potential win and hold rate volatility.

Mr Bekier noted that 18 months ago the company had a terrible win rate against this year's positive win rate -'that's just the luck of the draw'.

But he noted that as the business becomes less skewed to international VIP and more tilted to the premium mass market the win rate should become less volatile.

The need to diversify away from Chinese VIP customers has meant the casino group will ultimately have a lower risk base which generally produce better margins that the big hit players.

(The Sydney Morning Herald)