Australian casino operator Echo Entertainment Group Ltd is to spend up to AUD300 million (US$214.3 million) in fiscal 2016 to upgrade gambling and hotel facilities at two of its properties – on operating results buoyed by rising revenues from Asian and other foreign players – it said in its fiscal 2015 results filing on Wednesday.
Echo Entertainment reported statutory net profit after tax up 59 percent year-on-year, at AUD169 million in the 12 months to October 31.
Gross revenue was AUD2.26 billion, up 19 percent from fiscal 2014. It declared total dividends of AUD0.11 per share, fully franked, up 38 percent year-on-year.
Turnover from international VIP rebate business was AUD46 billion in the reporting period, with actual revenue from that segment amounting to AUD588.4 million, up 48.4 percent.
Matt Bekier, managing director and chief executive of the firm, indicated in a statement accompanying the results that an uptick in the number of Asian tourists visiting Australia would be beneficial for the casino business.
“We believe this represents a significant opportunity to us as a company, and in fact for all of Australia. The increasing wave of Asian tourism, particularly from China, has the potential to be our next mining boom,” said the CEO.
In July the company was chosen by the state government of Queensland as preferred tenderer for a large new casino resort at Queen’s Wharf, Brisbane, in partnership with Hong Kong’s Chow Tai Fook Enterprises Ltd. The latter privately held firm was founded by Cheng Yu Tung, a long-standing investor in the parent company of Macau casino operator SJM Holdings Ltd. Far East Consortium (Australia) Pty Ltd, a unit of Hong Kong-based Far East Consortium International Ltd, is also a partner in the new Brisbane scheme.
It has been reported that Echo Entertainment will provide 50 percent of the capital, with the other partners giving 25 percent each. No budget has so far been mentioned for the Queen’s Wharf project, but several Australian newspapers have said a seven-figure sum could be involved.
Mr Bekier noted in Wednesday’s earnings announcement: “Chow Tai Fook has significant financial capacity to support large scale development, highly complementary VIP relationships in Greater China and Asia, hotel management and development expertise through the Rosewood brand and international project development expertise.”
Echo Entertainment – which at its annual general meeting on Wednesday won approval from shareholders to change the firm’s name to The Star Entertainment Group Ltd – said in the fiscal 2015 results filing that China is forecast to contribute 40 percent of Australia’s total inbound tourism expenditure in the period from 2013 to 2023.
Mr Bekier noted in a statement accompanying the results that AUD500 million is to be invested in The Star (pictured) in Sydney over the next five years. It includes between AUD150 million and AUD175 million in fiscal 2016, including on the property’s Darling VIP salons.
At the firm’s existing Jupiters Gold Coast property in Queensland, the first phase of a AUD345-million redevelopment has been completed, and there will be an estimated capital expenditure in fiscal 2016 of AUD100 million to AUD125 million, including new VIP gaming salons and new VIP hotel suites.
A note on Wednesday from JP Morgan Securities Australia Ltd had a cautious tone regarding the ongoing contribution of Asian players to the Australian casino market.
In a paragraph headlined “How long can Australia remain the anomaly in VIP?” analysts Matthew Ryan and Michael Aspinall stated: “We believe that investors will continue to question how long VIP turnover can outperform the rest of the world, which we estimate is currently down [circa] 32 percent.”
An anti-graft campaign in mainland China and the slowing of that country’s economy have been identified by a number of investment analysts as having had a cooling effect on the flow of cash for VIP gambling. They say that applies not only to Macau – which saw a 35.5 percent downturn in all casino gross gaming revenue in the first 10 months of this year – but also to neighbouring casino jurisdictions.
According to media outlets in mainland China, in June the country’s Ministry of Public Security started an operation called “Chain Break” – said to be aimed at disrupting foreign casinos’ access to money flows from China. The operation also reportedly targeted those casinos’ links to individuals that scout for gamblers in mainland China.
The Echo Entertainment branding was created in mid-2011 when parent company Tabcorp Holdings Ltd split its casino and racetrack wagering operations.
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”We expect Goa to quickly become a US$1 billion market as it transitions to land-based casinos (from US$150 million today), which is still just a fraction of India’s total GGR potential of US$10 billion to US$17 billion”
Analyst at Union Gaming Securities Asia