Profit slumps at Australia’s Crown as Chinese VIPs fold

Reuters:  Crown Resorts Ltd, Australia’s No. 1 casino company, on Thursday said first-half profit slumped 35% as Chinese high-rollers chose cheaper destinations like the Philippines and Vietnam to escape a corruption crackdown at home.

The company was a beneficiary of the crackdown last year, as junket operators directed VIP gamblers to Australia to avoid higher official scrutiny of gambling operators in the southern Chinese territory of Macau, Asia’s casino capital.

But that traffic has slowed with the rise of cheaper gambling destinations like the Philippines and Vietnam, hurting Crown and its smaller Australian rival Star Entertainment Group Ltd.

“The switch has been flicked off,” said Corporate Stockbroking Executive Director James McGlew, of the  Perth-based brokerage Argonaut Ltd.

Melbourne-based Crown, 53% owned by billionaire James Packer and smaller Star, said “normalised” net profit plunged 35% to A$210.3 million ($150.7 million) in the six months to end-December. The figure, which casino companies use to strip out irregularities in win rates, missed the A$247 million average forecast of analysts polled by Thomson Reuters I/B/E/S.

Net profit from its one-third owned Macau business, Melco Crown Entertainment Ltd, dove 89%.

In its flagship casino in Australia’s second-biggest city Melbourne, Crown said net profit slipped 1.2% to A$255.9 million as an 11% drop in VIP turnover was offset by a spike in “main floor” gambling revenue.

Star cited growing competition from cheaper Asian destinations when it reported last week that VIP turnover in Sydney, Australia’s top tourism destination rose just 1.2%.

Despite being half Crown’s size, Star has been gnawing at its rival’s dominant position in Australia. Last year it outbid Crown for a licence to build a resort in Brisbane city, while Crown is facing lengthy delays in building a resort to rival Star’s in Sydney. Those challenges have fueled Australian media speculation that Packer, who quit the Crown board and announced his engagement to singer Mariah Carey in 2015, is talking with private equity firms about taking the entire A$9.1 billion company private.

Packer has denied privatisation plans and on Thursday Crown said it had not received any such approach.