Star Entertainment Group Limited

Approaching Two Years of Visiting Sydney's Casino: 1H19E Observations, Takeaways, and Result Preview

Overweight

SGR.AX, SGR AU

Price: A$4.47

Price Target: A$6.10

We have visited SGR’s Sydney property almost every Monday evening since March 2017 to take note of changing slots, construction/disruptions, occupancy & activity across key gaming segments. Key 1H19E result takeaways: 1) Sydney observations imply soft main gaming floor table growth with AGM update signaling Sovereign room strength; 2) MTGM areas remain strong (refurbished) as slot growth is mixed by jackpot, Lightning Link, and Dragon Link activity; 3) Sydney Food & Beverage weaker in 1H19 per our observations (and closure of Balla restaurant); 4) 1H19 Brisbane EGM expenditure up 0.2% on the pcp as Gold Coast is down -0.1% with flat slot revenue expected in Queensland; and 5) ALL land-based performance update with key SGR observation tables overleaf. We adjust our FY19 earnings by -2.1% based on our observations. Retain Overweight, Dec-19 PT A$6.10.

• Group domestic gaming revenue forecast +5.5% in 1H19. Sydneyspecific1H19trends appear mixed: Tables: forecast in-line with management comments from AGM, JPMf +7.4% with support from Sovereign room. MTGM’s: improved on 1H18 trends from refurbishments. Slots: installation of strong products but mixed jackpot play. VIP: visitation positive and forecasts unchanged. F&B: weakness and closure (Balla) observed during events and holiday periods, JPMf +1%. Tournaments: positive activity continues during World Series of Poker.
• EGM data continues to support ALL performance. Star Sydney’s distinct “New Games" and regulatory benefit continue to support ALL’s ongoing land-based strength as recent 3-month performance data highlights overleaf. Key new 1H19 slots: ALL’s PC Opal edition, SGMS’s 5 Echo Fortune, Aruze’s Cannonball, Konami’s Spin Ball & Dynamite Dollars, and Atlas’ EGMs.
• Retain Overweight. SGR is delivering on initiatives to improve the domestic offering and reinvesting in the customer through product/loyalty. Hotel openings will boost main gaming revenue while VIP turnover appears insulated by direct marketing initiatives and provides potential upside despite industry uncertainty. Retain Overweight, Dec-19 PT A$6.10.

• Star Entertainment Group Limited (Reuters: SGR.AX, Bloomberg: SGR AU)

  	Year-end Jun (A$)	FY17A	FY18A	FY19E	FY20E	FY21E
  Revenue (A$ mn)	2,337	2,695	2,818	2,971	3,102
  EBITDA (A$ mn)	515	588	627	656	685
  Net Profit (A$ mn)	264	148	268	293	306
  EPS (A$)	0.32	0.18	0.29	0.32	0.33
  P/E (x)	14.0	25.5	15.3	14.0	13.4
  EV/EBITDA (x)	9.7	8.1	7.8	7.9	7.7
  DPS (A$)	0.16	0.20	0.23	0.24	0.25
  Dividend Yield	3.6%	4.6%	5.0%	5.4%	5.6%
  Normalised EPS (A$)	0.26	0.31	0.29	0.32	0.33
  Normalised EPS Growth	(11.1%)	17.6%	(4.2%)	9.3%	4.1%
  Normalised PE	17.2	14.6	15.3	14.0	13.4

  Source: Company data, Bloomberg, J.P. Morgan estimates.

  Company Data
  Shares O/S (mn)	917
  Market Cap (A$ mn)	4,100.43
  Market Cap ($ mn)	2,952.93
  Price (A$)	4.47
  Date Of Price	16 Jan 19
  Free Float(%)	-
  3M - Avg daily vol (mn)	3.78
  3M - Avg daily val (A$ mn)	17.20
  3M - Avg daily val ($ mn)	12.4
  ASX100	4817.60
  Exchange Rate	0.72
  Price Target End Date	31-Dec-19
  Price Target (A$)	6.10