The Star continues winning streak

Morgan Stanley has outlined in a global gaming report that The Star occupied a monopoly position in Sydney, which it said remains Australia’s premier VIP market.

The Star’s run rate VIP growth was around 23 per cent, whereas the Australian VIP market, excluding The Star, was around 10 per cent.

“The Star’s ability to manage new VIP market entrants still remains the biggest stock specific risk and longer term value driver, though this is not expected until 2021,” the report said.

New market entrants will come via the James Packer-backed Crown Resorts, which already has casinos in Melbourne and Perth. Mr Packer’s Sydney plans, which will target the VIP market, is progressing slowly and despite original hopes it would be ready in 2019, it is now expected to open in 2021.

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The Star’s recent financial results showed that for the second half of 2016, VIP revenue at its Sydney casino, for the first time, outstripped Crown Melbourne’s

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The rivalry between Crown and The Star has tipped in The Star’s favour as Crown’s Macau investment weighs on the company.

The Morgan Stanley report said the market share of VIP revenue outside of Macau reached 42 per cent in the second quarter of 2016 from around 20 per cent prior to 2014.

“We think outside of Macau will continue to gain share given lower effective tax rate, easing visa policy for Chinese outbound tourists, improving infrastructure and player anonymity, driving higher profitability for junkets/casinos,” the report said.

“Chinese VIP patrons plan to increase visits to regions outside Macau, as suggested by our June 2016 AlphaWise survey, especially Singapore, Korea and Australia, but fewer trips to Las Vegas. In 2016, we expect VIP revenue growth of 7 per cent outside Macau, versus 16 per cent decline in Macau.”

Chinese outbound tourists grew significantly year-on-year in the first half pf 2016. Morgan Stanley’s team of gaming analysts said gambling hubs in the Philippines, Singapore, Korea and Australia saw a higher mix of Chinese visitors in the first half of 2016 compared to the same period last year, except for Macau.

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The Morgan Stanley report also highlighted that the biggest challenge to its assumption that Australia could continue to take regional VIP share was the rapid emergence of Saipan, which is the most populated of the Northern Mariana Islands in Micronesia

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VIP revenue in the first half of 2016 in Saipan was $US493 million, compared to Australia at $US596m over the same period.

“Put another way, over 12 months, on a run rate basis, Saipan is 80 per cent the size of the total Australian VIP market.

“Further, Saipan is expected to add further VIP capacity in the first half of 2017. The quality and sustainability of Saipan’s VIP growth is unclear, though the current growth rate presents risks to Australian VIP share medium term, particularly given the proximity of Saipan to mainland China versus destinations like Australia and New Zealand.”