SkyCity Entertainment Group's complicated first-half result obscures important issues for the casino operator.
On February 13, the company reported net profit of $328 million for the six months to December 31, more than triple that in the same period a year earlier.
The increase was mostly due to the accounting treatment of the fire at its unfinished international convention centre and a one-off sale of an Auckland carpark.
Its shares closed 2.2 per cent higher that day at $3.67, trimming its 12-month loss to about 4 per cent.
The distractions meant there was little focus on coronavirus and its impacts.
SkyCity said it was trying to ascertain how many of its customers come from China and thinks it's about 5 per cent.
That estimate, however, excludes its high roller international business, which makes up 12 per cent of normalised earnings before interest, tax, depreciation and amortisation. Chief executive Graeme Stephens downplayed this slightly in the company's analyst briefing, repeating that it represented "10 per cent-ish."
The impact of coronavirus on this already up-and-down business segment requires more analysis. SkyCity wants to grow this area, which generates 20 per cent margins for the company, second only to the Auckland casino.
The drag on like-for-like group normalised ebitda is such that its 8 per cent decline would have been a 2 per cent increase if not for the impact of high rollers. The impact on second-half ebitda guidance is from $303m to just under $300m.
Stephens told analysts that over the lunar new year some key players couldn't visit New Zealand. The concession was significant because, although it wants to diversify, SkyCity's international business relies on a small number of larger players.
• What experts say about SkyCity's 'messy' result
Despite this, the chief executive told analysts that in the next half the company expects to do better than the $4.6 billion turnover it reported for its international business in the first half.
"Chinese New Year was impacted by coronavirus so it has been a weaker start, but we do have some optimism around future bookings, the sales team is working hard."
While Stephens said it was still too early to judge any impact, Auckland International Airport is seeing just eight to 11 flights per week to and from China compared to the more usual 45. Economists have already tipped a broader decline in Chinese visitors, suggested the real impact has yet to be seen.
Even if Stephens meets his $10b turnover estimate, it would still be smaller than the $14.1b it generated in FY2019, and the $11.9b the year before that.
Given the rocky outlook, it is probably not surprising that SkyCity shelved - for the time being - its Queenstown hotel development aimed at high rollers.
Meanwhile, ASX-listed Crown Resorts reported on February 20, signalling a 34.2 per cent decline in VIP programme turnover for the six months to December 31. The company, which is part-owned by billionaire James Packer, has casinos in Melbourne, Perth and Sydney.
The impact of coronavirus on this business is also foggy because the casino operator had already seen a decline in VIP visits as its licence is investigated due to reports linking it to money laundering and tour operators with links to organised crime.
Asked whether the company needed focus on South East Asia rather than North Asia due to coronavirus, chief executive Ken Barton said it could try but, because the latter's business was so substantial, any other gains weren't enough to offset the decline.
"VIP goes through volatility and we are going through a period now from regulatory and other extraneous factors that is causing the market to soften," he told analysts.
It appears Barton is happy to just ride out the bumps, in contrast with rival Star Entertainment Group.
Star, which has properties in Sydney, the Gold Coast, Brisbane and London, reported first-half VIP volumes up 2 per cent, although it noted the outlook was challenging.
Surprisingly, chief executive Matt Bekier said in the first six weeks of the current half, VIP revenue was up compared to the same period a year earlier.
That was because high rollers who left Asia before the lunar new year basically were stuck in Australia, and therefore extended their stays and spend.
Bekier noted, of course, an adverse impact might still eventuate depending on border restrictions.
But the company has somewhat insulated itself from China's woes, having lifted non-Asian VIP revenue by 16 per cent in the period. It is also less vulnerable anyway with 8 per cent of group earnings coming from VIPs.
A focus on "premium mass business," which targets a broader range of countries' tourists, within the VIP segment is the company's "sweet spot," according to Bekier.
So, is SkyCity doing enough as its own sweet spot sours?