Shares in the Star Entertainment Group Ltd (ASX: SGR) were up 1.23% to $5.34 on Thursday after the company announced the expansion of existing strategic partnerships, an equity placement and a new dividend policy.
Star Entertainment owns and operates three large casino and hotel venues in Brisbane, the Gold Coast and Sydney, with two Hong Kong-based joint venture partners: holding company Chow Tai Fook Enterprises Limited and property development firm Far East Consortium International Limited.
The three parties entered into a new strategic agreement for the development of Star Entertainment's properties, with plans to build five new towers for hotel, residential, gaming and retail development at The Star Gold Coast precinct, and a potential partnership with the New South Wales Government to build a station of the Sydney Metro West near The Star Sydney casino.
The agreement includes a marketing alliance intended to leverage the JV partners' customer bases to drive high net worth international tourists to the group's properties.
The deal is underpinned by a $490 million subscription agreement under which Chow Thai Fook and Far East will acquire 45.8 million new ordinary shares in Star Entertainment – a 4.99% stake each – at $5.35 per share. The partners' shareholding increase is subject to approval from New South Wales and Queensland gaming authorities.
Star Entertainment announced a more generous dividend policy, setting distributions to a minimum of 70% of normalised net profit after tax, starting with the FY2018 final dividend.
The company issued a trading update, stating that trends observed in the FY2018 interim report have continued in the last three months. Normalised gross revenue for the first quarter of 2018 is up 18.8%, but the Sydney casino isn't contributing as strongly as those in Queensland, and the win rate in the International VIP segment, i.e. foreign high roller gamblers, remains low.
Foolish takeaway
The company posted a mixed half-year result in February, and today admitted the situation of the business is broadly unchanged. I think development and marketing could help to grow revenue, but the problem with the low win rate remains.
With the stock trading at 28x earnings, I'm not a buyer of Star Entertainment at the current share price.
