High rollers propel SkyCity's first half profit

UPDATED 12pm: SkyCity Entertainment Group [NZX: SKC] posted a 30% gain in first-half profit, citing improvements across all its properties, lower funding costs and more gambling by high rollers. 

Group turnover was up 51% to $7.2 billion from its international business, the term it uses for high roller gamblers. And SkyCity wants to lure more high roller gamblers from Asia to bolster activity at its Adelaide and Darwin casinos.

 Net profit across the group rose to $71 million, or 12c per share, in the first half, from $54.6 million, or 9.3c, a year earlier.

That's at the top end of the company's forecast range of $69 million to $71 million. Revenue increased 14% to $566 million. 

SkyCity's New Zealand casinos are benefiting from the country's record tourism and migration while lower interest rates underpin consumer spending.

"We have continued to achieve strong growth across our New Zealand properties and international business," chief executive Nigel Morrison says.

He says trading in January was broadly consistent with the trends seen in the first half of the year. 

First-half earnings before interest, tax, depreciation and amortisation rose 22% to $171.6 million, from $140.8 million in the year earlier period. That's within the company's forecast range of $170 million to $173 million. 

At its flagship Auckland casino, ebitda increased 8.9% to $135.4 million as revenue lifted 7.4 % to $324.9 million. 

"The continued momentum in Auckland reflects the benefits of the significant investment in the property over the past few years and positive external factors which remain supportive of our underlying business with record low interest rates, record high net migration and strong tourist inflows continuing to support discretionary spending levels," Mr Morrison says. 

SkyCity anticipates the Auckland business will benefit from government gaming concessions which were triggered on in November in recognition of SkyCity's planned $470 million convention centre development. 

Mr Morrison says the concessions will allow the Auckland business to lift its activity during peak period, noting it had a record revenue week over the Christmas and New Year period. He declined to disclose the amount of revenue. 

At the company's Adelaide casino, singled out last year as an underperformer, ebitda jumped 59% to $A21.4 million as revenue advanced 19% to $A103.6 million. 

Adelaide's improvement was driven by significant growth in its international business, as it lured more VIP customers visiting the eastern seaboard of Australia, as well as strong food and beverage activity, improved margins and cost savings. 

"Whilst we are pleased with the improved performance in Adelaide, challenges remain delivering growth in a soft local market," Mr Morrison says.

"We have done a lot of the hard work and we are looking forward to building the revenues of that business now that we've invested the capital. The restaurants are doing well and certainly we are getting good growth in attracting international high rollers to Adelaide." 

The Adelaide property is hindered by not having a hotel or carpark and although the company is in the process of negotiating agreements to secure those, they were still two to three years away, he says. 

Adelaide is now be operating from a lower cost base and is expected to improve future revenue and earnings, Mr Morrison says.

"Once all those things are done, the potential for growth in Adelaide is exciting." 

In Darwin, ebitda increased 6.9% to $A23.1 million as revenue rose 2.6% to $A75 million. 

Mr Morrison says the local market in Darwin is more "challenging" as the number of workers involved in the construction of the INPEX liquid petroleum plant winds down. 

SkyCity is in talks with local officials to try and get more direct flights from Asia into Darwin to bring in more VIP gamblers, which will help bolster the business. 

"Without having good jet service or carrier service with business class or first class flights out of Southeast Asia and into Darwin, it does make it difficult to attract VIP players, notwithstanding that the proximity to Darwin of southeast Asia is good and that's why we think the potential for Darwin in that business is significant but the airlift is the challenge," he says. 

The company will pay a first-half dividend of 10.5c a share on March 18, up from 10c a year earlier. 

The shares slipped 0.9% to $4.40, and have gained 14% the past year. The stock is rated a 'hold', according to 11 analyst recommendations compiled by Reuters, with a mean target price of $4.64. 

(BusinessDesk)