The Star Entertainment Group – Investor day and trading update

About the author:

James Lawrence
Author name:
By James Lawrence
Job title:
Analyst
Date posted:
30 May 2018, 11:22 AM
Sectors Covered:
Gaming, Professional Services, Fixed Interest

2H18 trading update

At the investor day on 28th May 2018, The Star Entertainment Group (SGR) provided an update on their performance for the period from 1 January to 23 May.

Total normalised gross revenue is up 16.4% compared to the previous corresponding period (pcp). Meanwhile, domestic gaming revenue growth has been affected by lower table hold rates and is up just 2.6% on the pcp which is below our forecasts. Using constant hold rates it is up 6.8% on the pcp and we would anticipate the lower hold rate to normalise over the coming periods. 

VIP was very strong and turnover is up 63.7% on the pcp (well ahead of our forecasts and the business has maintained the strong momentum in 2H18). The actual win rate is below the theoretical win rate of 1.35%, but up on the 1H18 win rate of 1.06%.

Significant growth expected in premium Chinese travelers

In addition to the presentations by SGR throughout the day, Patrick Tsang, Chief Executive Officer of Chow Tai Fook Enterprises (CTF), highlighted the significant database (6 million members) and contacts it currently has which SGR could look to leverage. In 2016 there were 5 million high value premium Chinese travelers to Australia and they expect this to increase to 16 million in 2021 and 35 million in 2026 which bodes well for SGR.

Additionally, CTF expressed its intention to increase its position in SGR to 19.9% (from 9.99% currently) with Joint Venture partner Far East, assuming it receives regulatory approval to do so. If this were to occur it should help support the share price.

South East Queensland economy and Queen's Wharf update

SGR flagged the positive fundamentals of the South East Queensland (SEQ) market, with high inbound tourism, strong jobs growth and high median household income relative to property prices. The company also noted favourable gaming taxes relative to other casinos. While the long term outlook for the SEQ economy is positive, SGR did flag an increase in the capex cost of Queen's Wharf from A$1.8bn to $2.4bn. Of the A$600m increase, A$350m of it is to fund a 25% increase in the gross floor area which should increase project economics with the other A$250m attributed to cost escalation.

Investment view

We continue to believe that The Star Entertainment Group (SGR) is well placed to reward investors with growing EPS and DPS ahead of the Queen's Wharf project opening in FY23. Risks to our valuation include the global economic environment, a reduction in consumer spending, competition and regulatory changes.

We retain our Add recommendation.

More information

Morgans clients can login to view our detailed report and upgraded share price target for The Star Entertainment Group (SGR). Alternatively, please contact your Morgans adviser or nearest Morgans office for access.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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