SGR 0.22% $4.46 the star entertainment group limited

JP Morgan - Maintaining Overweight PT $6.10

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    Star Entertainment Group Limited

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



    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$)FY17AFY18AFY19EFY20EFY21E
      Revenue (A$ mn)2,3372,6952,8182,9713,102
      EBITDA (A$ mn)515588627656685
      Net Profit (A$ mn)264148268293306
      EPS (A$)0.320.180.290.320.33
      P/E (x) 14.025.515.314.013.4
      EV/EBITDA (x)
      DPS (A$)
      Dividend Yield 3.6%4.6%5.0%5.4%5.6%
      Normalised EPS (A$)0.260.310.290.320.33
      Normalised EPS Growth (11.1%)17.6%(4.2%)9.3%4.1%
      Normalised PE 17.214.615.314.013.4

      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

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