Sky City: Chinese Invasion?

I don't know whether the latest Chinese foray into foreigners taking business off them by Arresting 18 Aussies in China but the following is Morningstar's reaction to yesterday's news.

Do with it what you will.

Detention of Crown Employees in China Elevates Risks for All Australian and New Zealand Casinos

Chinese authorities' detention of executive vice president VIP International Jason O'Connor and 17 other Crown Resorts employees has clear negative implications for the company, as well as for Star Entertainment and SkyCity Entertainment. Unfortunately, estimating the extent of the impact is almost impossible at this stage, particularly as the reasons for the detention remain unclear.

What is clear is the elevated risk profile for all these operators' exposure to the Chinese high roller market. In fiscal 2016, 27% of Crown's normalised group revenue was generated from the VIP market, 28% for Star and 15% for SkyCity. It is no exaggeration to say that this VIP market is dominated by Chinese patrons. While margins for this segment are lower than the main floor gaming business, VIP is an important driver of all these casino companies' long-term growth plans.

Indeed, Chinese high rollers are a major plank underpinning Crown's AUD 2.0 billion Sydney casino project, Star's AUD 2.2 billion investment (across STAR Sydney, Jupiters Gold Coast, Queen's Wharf Brisbane) and SkyCity's NZD 1.0 billion capital spending (across Auckland and Adelaide).

While the latest development in China vindicates our high uncertainty ratings for the casino companies under our coverage, we have maintained their fair value estimates at this stage (AUD 14.50 for Crown, AUD 4.00 for Star, NZD 4.40 for SkyCity).

We are reluctant to make a snap judgment on the impact of the Crown employee detention on the intrinsic value that we have on all these casino operators. There will clearly be an impact on earnings if there are any tightening restrictions on how their employees can promote Australia's "tourism appeal" to Chinese high rollers without directly marketing the group's casinos. However, much of this is merely conjecture at this point and certainly forms no basis to change our moat ratings for Crown (narrow), Star (none) and SkyCity (narrow).

Sky City Entertainment Group @ Share Investor

Share Investor's 2016 Stock Picks
Sky City gets the 2nd deal
Sky City Expansion: Adelaide Spreads on the Riverbank
Sky City to pay for National Convention Centre
Share Investor discusses Convention Centre proposal with CEO Nigel Morrison
Sky City Convention Centre Expansion a Money Loser: Part Two
Sky City Convention Centre Expansion a Money loser
SKC Convention Centre power-point slide illustrations & SKC submission to Auckland City Council
Sky City Gaming: Morningstars look at Sky City's gaming
Share Investor's Total Returns: Sky City Entertainment Group Ltd
Sky City Entertainment Group Ltd: Presentation to Macquarie Group
Morningstar Revalues Sky City Entertainment Group
Guest Post - Michele Hewitson Interview: Nigel Morrison
Failed Sky City bid for Christchurch Casino good news for Shareholders
Sky City Entertainment Group Ltd: Christchurch Casino bid falls short of Investment Criteria
Sky City Entertainment Group Ltd: Never mind the width feel the volume
Sky City Annual Meeting & 2011 - 2012 Profit Forecast
Stock of the Week: Sky City Entertainment Group Ltd
Sky City set to lose National Convention Centre bid
Sky City Entertainment Group: Australian Acquisition on the Cards?
Sky City Entertainment Group Ltd: 2010 Full Year Profit Analysis
Sky City Entertainment Group 2010 Full Year Profit Preview
Chart of the Week: Sky City Entertainment Group Ltd
Share Investor discusses Convention Centre proposal with CEO Nigel Morrison
Share Investor Q & A: Sky City CEO, Nigel Morrison
Sky City Entertainment: CEO Nigel Morrison discusses 2010 HY
Sky City Convention Centre Expansion a Money Loser: Part Two
Sky City Convention Centre Expansion a Money loser
Sky City Entertainment Group Ltd: Download full Company analysis
Sky City 2010 full year profit looking good
Long Term View: Sky City Entertainment Group Ltd
Sky City Entertainment: CEO Nigel Morrison discusses 2010 Half Year
Sky City Entertainment Group 2010 Interim Profit Review
Sky City to focus on Gaming
Sky City debts levels now more manageable
Insider Trading on Sky City shares
Sky City Profit Upgrade: Always on the Cards
Sky City's Current Cinema "Boom" a Horror Story in Disguise
Stock of the Week: Sky City Entertainment Group
Are Insiders selling Sky City Stock?
Sky City Entertainment 2009 Interim Result Preamble
2008 Sky City profit analysis
Sky City share offer confusing and unfair for smaller shareholders
Sky City Entertainment 2008 Full Year profit results , NZX release, 2008 full year presentation, result briefing webcast, financial statements
Sky City 2008 profit preamble
Sky City outlines a clear future plan
As recession bites Sky City bites back
Sky City Assets: Buy, sell and hold
Why did you buy that stock? [Sky City Entertainment]
Sky City Share Volumes set tongues wagging
Sky City half year exceptional on cost cutting
NZX Press release: Sky City profit to HY end Dec 2007
Sky City Cinemas no Blockbuster
Sky City Entertainment share price drop
New Broom set to sweep
Sky City Management: Blind, deaf and numb
Sky City sale could be off
Opposition to takeover
Premium for control
Sky City receives takeover bid
Sky City Casino Full Year Profit to June 30 2007
Setting the record straight
Sky City CEO resigns
Sky City Casino: Under performing
Sky City Casino 2007 HY Profit(analysis)
Sky City Casino 2007 HY Profit

Discuss SKC @ Share Investor Forum
Download SKC Company Reports

Toughen Up: What I've Learned About Surviving Tough Times by Michael Hill c Share Investor 2016