The Star to outshine Packer’s Crown

The Star is set to benefit more from “robust” tourism growth than James Packer’s Crown Resorts.

Chinese tourism is tipped to contribute up to 14 per cent of at The Star.

The Star Entertainment Group is set to outshine its major rival, James Packer’s Crown Resorts, with Asian tourists increasingly setting their sights on Australia’s east coast.

Macquarie’s team of gaming analysts have outlined that both Crown and The Star should benefit from continued international tourism growth, though The Star was slightly better placed to participate in “superior” rates of growth on the east coast.

Sydney and Melbourne were expected to witness “robust” international tourism growth of around 6 per cent and 4 per cent in 2017, while Queensland, particularly the Gold Coast with 29 per cent growth in 2017, should benefit from a steep ramp-up in visitors, according to the analysts.

The investment bank highlighted that international flights to the Gold Coast were expected to grow by more than 45 per cent in the first half of 2017, which it said would underpin a positive outlook for The Star’s well-timed redevelopment of its Jupiters casino.

“With completion of Jupiters’ $345 million redevelopment anticipated in 2018, the ability for Jupiters Gold Coast to participate in significant tourism growth will be dependent on the ability to mitigate development disruption,” the bank’s analysts said in a client note.

Macquarie said it had increased its target price for The Star to $7 from $6.26, and it has also upped its target price on Crown to $15.28 from $14.50.

“We view both The Star and Crown as attractive. Both possess a strong growth outlook once the favourable impacts of near-term capex projects take hold,” Macquarie said.

“We have developed a preference for The Star … overall The Star is better placed for growth due to its exposure to higher-rate east coast tourism growth, greater rates of Chinese tourism growth, and avoidance of Western Australia’s weak economy.”

The investment bank said the outlook for Australian tourism remained “very strong”, adding that its proprietary airline data suggested The Star was better placed to benefit from Chinese tourism growth.

“The Star and Crown state that Chinese tourists are more likely to visit Australian casinos than the average tourist and are also likely to spend more than the average visitor,” the report on Australian casinos said

“This is supported by Tourism Research Australia data showing a higher-than-average level of gambling spend by Chinese tourists and is consistent with a well-researched general Chinese affinity for gambling.

“We note that significant upside exists to estimates of Chinese tourism revenue contribution, with our analysis suggesting a contribution as high as 14 per cent for The Star.”

The gaming analysts also said that The Star’s capital expenditure profile would be more profitable than Crown’s because of lower incremental capex under the joint venture structure of its future projects and greater exposure to a higher return on invested capital, namely gaming operations versus non-gaming operations for Crown.

They also tip that Crown Perth’s earnings would be materially impacted by the resources downturn in Western Australia.

But the team adds upside to Crown Perth’s outlook lies in its resilience and WA’s economic recovery as well as the completion of Crown Towers in mid-2017.