Star Entertainment braces for fight with Crown, as its profit tumbles despite high roller lift

Star Entertainment is confident there will be only one winner in an impending battle for Sydney market share.

The Star casino in Sydney. Picture: Supplied

Star Entertainment is bracing itself for strong competition from its soon to be neighbour in Sydney, Crown Resorts, and is confident there will be one loser in what chief executive Matt Bekier describes will be a Qantas/Virgin type war.

Crown is on track to open its $2.2bn casino currently under construction at Barangaroo, saying it will target the high-end local table and international high-roller market.

But Mr Bekier said while the international VIP market will make Sydney a more attractive gaming destination, at the expense of Crown’s 26-year-old casino in Melbourne, the domestic market will heat up significantly — and he’s prepared for the fight.

“Crown’s table limit is $30, so $30 we barely have tables open like that on a Saturday night. So they will definitely go after all of the table game customers in Sydney,” Mr Beiker told The Australian.

“For the international VIP business it is true Sydney will become a more attractive destination with two casinos but for the domestic business it’s absolutely not true because Australia is the highest per capita spend on gaming already.

“In a way it’s no different to Qantas and Virgin.”

Mr Bekier was speaking as Star’s delivered an 8.5 per cent increase in underlying net profit to $206m in the six months to December 31. Mr Bekier said an “unusually low” win rate of 0.73 per cent hit the company’s statutory net profit, which crumbled 48.5 per cent to $77m.

He said trading conditions remained challenging so far in the second half of the year, citing cautious consumer sentiment from the bushfires and the deadly coronavirus.

But Star was able to achieve a 2 per cent increase in VIP turnover, something Crown had failed to achieve, with its high-roller revenue plunging 34.2 per cent to $13.1bn, which the James Packer-backed group attributed to negative headlines around the NSW Independent Liquor and Gaming Authority’s inquiry, which resumes next week.

Mr Bekier while the inquiry had not directly hit Star, the negative publicity had infected its international high-roller business.

“Forty to 50 per cent of the VIPs that come to Australia play in Melbourne as well as Sydney.

“So if they are not going to Melbourne, they are not coming up to Sydney as well, so that has been a little bit harder for us.

“This is not just like hopping across the border to Macau, it's a long flight and a lot of the players want to make it worthwhile, so that’s why we share those players.”

Mr Bekier said the slight rise in VIP turnover was a credible result in challenging conditions but Star has been moving to shift away from chasing whales in recent years to combat volatility in the high-roller market.

He said Star’s future was targeting the premium mass market, which he said looked more like a high-end tourism customer.

“So that paradigm shift is there away from chasing whales to having a much more sustainable tourism type business.

“With coronavirus that still hits us because you can’t get into Australia but longer-term it changes the profile of the business to a lower risk, less volatile more diversified business.”

Star’s shares closed 4.6 per cent higher at $4.33 on Thursday.

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JPMorgan analyst Donald Carducci said the company had done well managing what was in its control.

He said the main uncertainty was the impact of the coronavirus, which he expected half of the current half of the financial year to weigh on earnings.

“It will be interesting to see what the behaviour is because when ebola was eradicated from the Democratic Republic of Congo, you didn’t necessarily booked a ticket to the DRC,” Mr Carducci said.

“Obviously this is a very different situation but at the same time a lot of the fear and a lot the face masks and all that stuff that’s going on around it, I don’t think it will recover as elastically as most think.

“This could really impact both the Barangaroo business case and earnings for the foreseeable future, which is why we’re neutral on both casinos. In the face of uncertainty and absent of any positive catalyst … it’s up to anyone’s guess.”

Star will pay an interim dividend of 10.5c a share on April 1 – unchanged from the same time last year.