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Buying companies exposed to inbound Asian tourism has been one of this column’s strongest themes in the past two years. Airports, airlines, hotel operators, leisure and transport companies are among those benefiting from the Chinese tourism boom.
I have been bullish on Sydney Airport for several years (although now think it’s fully valued). Qantas Airways, Mantra Group, Sealink Travel Group, The Star Entertainment Group and Ardent Leisure Group have also featured. Only Ardent has disappointed.
Casino-related stocks look particularly interesting. Australian and New Zealand casino companies are benefiting from higher Asian tourist patronage, but the sector has arguably only scratched the surface of the inbound Asian tourism boom.
The Star Entertainment Group, the pick of the casino stocks, is an example. It estimates that Chinese tourists generate around 3 per cent of its main gaming-floor revenue at its flagship The Star casino in Sydney. Crown Resorts is thought to make up to 10 per cent of revenue at its Melbourne casino from Chinese tourists.
The Star says more than 20 per cent of Chinese visitors to Sydney and Brisbane visit its casinos, even though it is still ramping up its marketing efforts and tourist linkages in China. 
Crown has higher brand awareness in Asia, but it, too, can make bigger inroads into the lucrative Chinese outbound tourist market to Australia.
I was impressed by the potential of both casinos after reading an excellent Macquarie Wealth Management report this week that compared their leverage to Chinese tourists. Macquarie has an outperform recommendation and price targets for The Star at $7 and Crown at $15.28.
On Macquarie’s math, around 2 per cent of total visitors to The Star in FY17 will be Chinese tourists. The Star has 11 million visitors per year and one in five Chinese visitors to Sydney and Brisbane (an estimated 628,000) will visit its casinos in FY17. 
If The Star can lift visitation rates from 20 per cent to 30 per cent with extra marketing, 188,000 Chinese tourists will visit its casinos in FY17.
That calculation suggests The Star has huge scope to increase the proportion of Chinese tourists in overall visitation numbers. Macquarie estimates that Chinese tourists could feasibly contribute 14 per cent to The Star’s main gaming -floor revenue.
Put another way, The Star Entertainment Group has an asset (its high-performing Sydney casino) that is highly leveraged to the inbound Chinese tourism theme. With reasonably passive marketing so far, it has managed to attract one in five Chinese tourists to Sydney to its casino.
Imagine what The Star could do with a much larger marketing effort into China and better linkages with travel intermediaries there. Or if it effectively cross-promoted its Sydney casinos with its Gold Coast and Brisbane operations.  
The Chinese tourist who arrives in Sydney, the most popular entry destination to Australia, could receive special offers to visit Brisbane and the Gold Coast and stay at The Star’s properties. A steady stream of new customers who stay longer at more hotels within the same group is the stuff of dreams for integrated resort providers. 
The scary part is the potential for Australia’s tourism industry to increase its overall share of the Chinese market. For all the talk about China’s growing travel appetite, Australia has a tiny share of the global market for outbound Chinese tourism.
Chinese tourists want to travel more and Australia is at the top of their destination list. The opportunity is to convert these intentions into confirmed travel plans, something that appears to be happening, given rapid growth in inbound Chinese tourism numbers. 
The potential is staggering. Goldman Sachs estimates that 220 million tourists from China will spend US$450 billion annually by 2025. The burgeoning Chinese middle-class is expected to take more trips, become more adventurous in holidays (fewer coach tours?) and spend more in upmarket retail and on other luxuries.
That’s good news for The Star and other Australian leisure-related and travel stocks that can tap a Chinese tourism megatrend that will take years to unfold. 
I like The Star’s strategy and operational performance. Its Sydney casino is benefiting from refurbishments and several nearby property developments should add to its momentum. 
Its revamped Gold Coast Casino, a smaller contributor to The Star’s performance, has good prospects. The redevelopment of The Star, Gold Coast, involves construction of a six-star, 17-storey hotel and refurbishment of 592 rooms in time for the Commonwealth Game in 2018. Continued growth in the number of Chinese tourists visiting the Gold Coast is another tailwind.
The Star’s longer-term fortunes will be driven by the massive Queen’s Wharf Brisbane project. The Queensland Government in July last year announced The Star-led joint venture as the preferred bidder for the hotly contested project, due for completion in 2022. Queen’s Wharf is expected to add $4 billion to the State’s economy.
Against that, Crown’s new casino in the Barangaroo precinct in Sydney will create a strong competitor for The Star. But it could also develop a global gaming precinct in Darling Harbour/Pyrmont, which should benefit The Star in the long run. Either way, the casino at Barangaroo is still years away. 
Six of eight brokers who cover the stock have a buy recommendation. Two have a sell. A median share-price target of $6.27 suggests The Star is a touch undervalued at the current $5.94.
Chart 1: The Star Entertainment GroupSource: The Bull
The Star Entertainment Group can do better than the market expects in the next few years as Chinese tourist numbers to Australia’s East Coast take off and its upgraded, integrated casino and hotel assets capture a bigger share of this market.  
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Tony Featherstone is a former managing editor of BRW and Shares magazines. The information in this article should not be considered personal advice. The article has been prepared without taking into account your objectives, financial situation or particular needs. Before acting on the information in this article you should consider the appropriateness of the information, with regard to your objectives, financial situation and needs. Do further research of your own or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at Aug 3, 2016.