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VIP high rollers still attractive to casinos

Tue, Apr 23, 1:44pm by Staff Writer

Australia’s top casinos are in a tug of war to lure back wealth Asian high-roller gamblers.

Sydney Morning Herald is reporting that the casinos are persisting with gamblers from Asia despite China’s economic slowdown but analysts are now “optimistic” about the chances of a recovery in the next financial year.

As China recorded its slowest rate of growth in nearly three decades, partly driven by trade tensions with the United States, Australian casino giants including Star Entertainment and the James Packer-backed Crown Resorts have experienced a sharp pullback in turnover by super rich Chinese tourists, denting profits.

Crown told its investors in February that turnover from its VIP program had shrunk 12.2 per cent to $19.9 billion, driving down company profits over the final six months of 2018.

At Crown’s flagship casino in Melbourne, turnover was down 11.2 per cent to $17.3 billion.

The company’s after-tax profit had risen less than 1 per cent to $194.1 million, short of forecasts by Macquarie Research ($203 million) and JPMorgan ($221 million).

In an effort to determine the strength of the “international VIP market”, industry observers have been monitoring the situation in the southern Chinese territory of Macau, the world’s biggest hub and major destination for punters from mainland China where gambling is illegal.

Despite an overall bearish view on the VIP market, analysts from Macquarie Wealth Management have observed a “U-turn” in mainland Chinese sentiment “which we see flowing into VIP confidence and driving an uptick in volumes.”

“We now include a VIP recovery in financial year 2020. While we remain cautious on [second-half 2019] VIP volumes, with our view that Macau VIP bottoms in the June 2019 quarter, we are optimistic and now forecast a recovery.”

Lower turnover at The Star in Sydney

A decrease in turnover was also noticed at Australia’s second biggest casino, Star Entertainment in Sydney, with a 33 per cent drop to $20.7 billion.

Investment bank JPMorgan’s gaming analyst Donald Carducci said the fact that both Crown and The Star’s VIP programs were weaker than expected indicated the economic situation in China was ‘clearly having an impact.’

Billed as a VIP-only casino and due to completion in 2021, Crown’s new high-end, $2 billion residential and casino complex under construction in Barangaroo will be closely tied to an ‘international VIP program’.

The volume of high roller gamblers coming to Australian casinos has dropped since 2016-17 after the Chinese government embarked on an anti-gambling crackdown, jailing 19 Crown staff for illegal marketing activities on the Chinese mainland.

“The Australian VIP market recovery has potentially stalled. Now you have a macro headwind providing a bit of conservatism for material growth,” Mr Carducci said.

“It makes the business case for Barangaroo less attractive.”

There is a consensus that Crown will have approximately 125 VIP gaming tables in its new casinos and if each can generates $2 million, this will create $250 million in revenue per year.

The question is whether this revenue will be from market growth or taken from its nearby competitor the Star Sydney.

Australian inbound gamblers may choose Sydney over Melbourne for its choice of casino and that could have a negative impact on Crown’s Melbourne operations Mr Carducci asserted.

For the first time in 2018 there were more Chinese visitors to Australia than any other nationality, with 1.39 million Chinese people visiting Australia according to government statistics. This represented a 13.2 per cent rise in visitor numbers.

“The domestic business still accounts for more than 80 per cent of [earnings before interest, tax, depreciation and amortisation] and is a higher quality business than VIP having greater earnings and better margins,” the analysts said.

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