Crown to win big as Chinese tourists splash the cash
A boost in spending by Chinese tourists is set to benefit gaming and entertainment group Crown Resorts as cashed-up travellers flock to its resort-casinos, Morningstar says.
Crown is well placed to capitalise on spending by Chinese tourists
A boost in spending by Chinese tourists is set to benefit gaming and entertainment group Crown Resorts (ASX: CWN) as cashed-up travellers flock to its resort-casinos, Morningstar says.
In his latest note, Morningstar equities analyst Daniel Ragonese says the group, which operates two luxury integrated-casinos in Melbourne and Perth, is well placed to capitalise on a preference among Chinese travellers to spend big down under.
Crown's future Sydney Hotel Resort property -- touted as "Sydney's first six-star hotel" and open only to premium members -- should also capitalise on this trend when it opens in 2021.
"Chinese visitors not only have a high propensity to gamble, but also a penchant for luxury hotels, high-end restaurants, and designer retail brands," Ragonese says.
"These are already the key offering at Crown Melbourne, and likely to be prominent features of the Sydney facility."
According to Tourism Australia, inbound expenditure by Chinese visitors is expected to grow at an annual pace of around 17 per cent for the next year, only marginally slower than the 20 per cent per year averaged during the past five years.
Ragonese is projecting revenue growth for Crown of 9 per cent for the next five years as the company recovers from recent scandals involving employee activities in China, and the Sydney development comes online.
He expects consolidated operating margin to average 18 per cent during the next three years.
Ragonese has awarded Crown Resorts a narrow economic moat, based largely on the licencing regime for casinos, which creates a legal barrier for rival operators. He also notes the company's consistent track record of reinvestment, resulting in a scale that should "deter new entrants in the unlikely event that governments decide to issue more licences."
As for potential headwinds, Ragonese describes the group as "materially derisked", basing his assessment on Crown's decision to scrap most of its international projects. In recent years, the group has exited from its stake in Macau-based Melco Resorts & Entertainment, abandoned its Las Vegas casino project, as well as the planned IPO of some of its domestic assets.
"While potentially missing out on some growth upside, these initiatives have substantially derisked the business," Ragonese says.
"The focus has shifted from international markets and towards its domestic portfolio and successful executive of the major projects in the pipeline, while fortifying the balance sheet."
Crown has a fair value estimate of $14.00 per share, slightly higher that the group's current $13.40 stock price.
Read the full analyst report.
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Emma Rapaport is a reporter for Morningstar, based in Sydney.
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