October 20, 2016
New Zealand casino operator SkyCity Entertainment Group’s shares tumbled on Friday over concerns that China’s anti-gambling moves could further depress already depressed VIP gaming revenue.
SkyCity issued a “disappointing” fiscal Q1 trading update on Friday, with ‘normalized’ revenue – so named because it smooths out the inherent variance of VIP gambling activity – falling 5.7% to NZD 262m (US $188.5m) in the three months ending September 30.
While nearly all of SkyCity’s casino properties were in negative territory for the quarter, the biggest decline came from its ‘international business’ (IB) segment (VIP to you and me). Normalized IB revenue fell 20.2% to NZD 34.3b due to decreased turnover and a lower than average win rate (although higher than the previous year’s Q1).
SkyCity says it enjoyed “fewer trips than expected from larger VIP customers” in Q1. That trend could continue, given China’s recent detention of 18 Crown Resorts staffers for promoting Australian casino visits to Chinese high rollers.
SkyCity said it’s closely monitoring the Crown-China drama, but stressed that the company “does not have an office in China or any China-based employees.” Instead, SkyCity relies on “independent contractors in China who help manage customer relationships from time to time.”
SkyCity said none of its contractors “have been questioned or detained” in connection with the Crown investigation, while expressing confidence that the contractors “comply with all relevant laws and regulations in China.” Regardless, SkyCity expects the financial impact of the brouhaha “is likely to be adverse over the short-to-medium term.”
SkyCity’s fiscal 2016 report showed its IB operations accounted for 15% of group revenue and 10% of earnings. Around half of all betting turnover came from Chinese customers. On the plus side, nearly two-thirds of group turnover comes from direct relationships with VIPs, and the company believes its non-reliance on junket operators and conservative approach to issuing credit will see it through this troubling period.
On a property-by-property basis, SkyCity Auckland revenue fell 1% to NZD 134m while the Hamilton property gained 11% to NZD 15m. In Australia, SkyCity Adelaide was flat at AUD 39m while Darwin fell more than 7% to AUD 32.5m.
The net result of SkyCity’s candor was to see its stock, which had already tumbled after the Crown news broke, fall to a one-year low of $3.69 before rebounding slightly.