Chinese tourism spend in Australia to soar, Star to benefit: MS

Increasing Chinese tourism in Australia is likely to be good news for Sydney’s Star casino, which is well positioned to capture this spending, according to a Morgan Stanley report.

The Star Entertainment Group outperformed the ASX200 by 36 percent in 2015 on the back of Australia’s global VIP market share gain, which went up from 4 percent to 5.9 percent in 2015, as well as its monopoly in Brisbane, the report says.

Over the next five years, Morgan Stanley forecasts a 15 percent CAGR for Chinese tourism in Australia to 2020, accelerating to 17 percent from 2020 to 2025. They also project Chinese tourism spending to rise from AU$5 billion (US$3.5 billion) to AU$13 billion by 2020. Since approximately 55 percent of all Chinese tourists enter through Sydney, The Star casino is well placed to capture this spending.

Chinese tourism will also support the Star Entertainment Group’s medium-term earnings profile from three areas, according to the report: 1) Mass revenue should help NSW table spending per capita increase to VIC levels (currently a ~30% discount); 2) VIP revenue– we continue to expect Australia to win global VIP market share; and 3) Hotels/shopping should drive strong occupancy rates and price increases.”

The group’s outlook is more positive now, as a result of finalized licenses in Brisbane, the benefits of Chinese tourism growth and an improving return profile, the report continues.