GGRAsia – Triple challenge to Oz VIP in early 2020: JP Morgan

Triple challenge to Oz VIP in early 2020: JP Morgan

Feb 13, 2020 Newsdesk Latest News, Top of the deck, World

The fact of Crown Resorts Ltd facing “media allegations” about its VIP gambling business, “travel issues” for consumers moving around Australia because of the recent bush fires, and now the emergence of the novel coronavirus; were potential headwinds in 2020 for the whole of that country’s casino sector. For one operator with a venue in Australia and several in New Zealand, those events might coincide with financial-year rolling chip turnover falling back to 2017 levels, said a Thursday note from JP Morgan Securities Australia Ltd.

Much of the recent growth in Australian casino VIP earnings has been linked by analysts to play by people from China and elsewhere in East Asia, but it can be a volatile business segment even when events at macroeconomic level are running smoothly, noted JP Morgan.

SkyCity Entertainment Group Ltd – a casino operator in Australia and New Zealand – and which reported on Thursday its results for the six months to December 31 – expected its full financial-year numbers to show VIP rolling chip turnover at approximately AUD10 billion (US$6.7 billion). SkyCity’s Adelaide, South Australia, property initially reports its earnings in Australian dollars, while the New Zealand venues report them in that country’s currency.

That “feels graphically similar to financial-year 2017 levels,” stated JP Morgan analysts Donald Carducci and Abhinay Jeggannagari.

The duo added that SkyCity anticipated VIP turnover performance would be “challenged” by impacts of the novel coronavirus outbreak that started in Hubei province in mainland China. The pathogen has now been given the official name Covid-19.

A SkyCity presentation to investors, released along with the interim results, mentioned – under a section titled “Coronavirus impact – current perspectives” – that the group had noted a “negative impact on international business over the Chinese New Year period”. The firm added that some planned visits from “key customers” had been postponed or cancelled, stating that entry restrictions are “currently in place in New Zealand and Australia for Chinese nationals”.

While SkyCity was being conservative on its VIP turnover forecast for its financial year 2020, the casino operator had noted it was “too early to estimate any future financial impacts” regarding coronavirus, said JP Morgan.

The institution also quoted some commentary from Australia’s The Star Entertainment Group Ltd on business performance for this week and for the year to date. The firm runs casino operations in Sydney, New South Wales, and in Queensland – and is building a new gaming resort with Chinese partners in the Queensland capital Brisbane.

JP Morgan cited the group’s management as saying there had been “no VIPs this week”, although the note didn’t clarify it that was a reference only to the Sydney property.

The Star Entertainment Group had reportedly added that “aside from the first week in January where we saw a couple of individuals, it’s been weak for the past seven months” in terms of VIPs.

In terms of overall baccarat table games operations, “volumes were lower than average and large tour groups that we usually see were in limited numbers this week,” JP Morgan cited the casino group as saying.

Fitch Ratings Inc said in commentary released on Thursday that the Covid-19 outbreak “will dampen economic growth in China this year,” but added that the scale of the impact “will depend on the duration and intensity of the health crisis”.

At the end of last year more bullish commentators were expecting China’s 2020 economic expansion might reach circa 6 percent.