February 15, 2017 / 10:24 PM / a year ago

UPDATE 2-Australia's Star casino to slash Chinese VIP numbers

* Star H1 net profit A$141.8 mln vs A$118 mln analysts

* “Normalised” H1 profit down 17.7 pct to A$107 mln

* International VIP turnover down 11.9 pct to A$20.8 bln (Recasts to raise China arrests, adds CEO comment, shares)

By Byron Kaye

SYDNEY, Feb 16 (Reuters) - Australia’s Star Entertainment Group Ltd said it will reduce its reliance on Chinese gamblers, previously the backbone of its business, after a “freakishly good” win rate masked a sharp downturn in income from Chinese high-rollers.

The arrest in October of 18 employees of the world’s biggest-listed casino operator outside China, Crown Resorts Ltd , has up-ended the China-focused business model of Australian betting houses.

“At this time we’re not taking any risks by calling on customers we don’t know. We don’t respond to customers we don’t know,” Star Chief Executive Officer Matt Bekier said on an analyst call on Thursday.

In the first earnings update of an Australian casino company since the arrests, Star posted a surprise record half-yearly profit of A$141.8 million ($109.3 million), up 135 percent thanks to a near doubling of its win rate.

But turnover from overseas visitors on gambling junkets, mainly wealthy Chinese, slumped 27 percent in the two months after the arrests and the decline was continuing, it said.

Adjusting the win rate to average levels, “normalised” net profit dipped 18 percent to A$107.1 million.

“We obviously want to be cautious because we just don’t have all of the facts on the table right now,” Bekier said of the fallout from the Crown arrests.

Star, which has its flagship casino on the Sydney waterfront, planned to cut the portion of Chinese gamblers among its so-called VIP visitors to 50 percent from 80 percent, he said. The company hoped gamblers from elsewhere in Asia would make up the other half of its international VIP revenue.

Like their counterparts across the Asia-Pacific, Australian casinos sell gambling holidays to Chinese VIPs via junket operators based in Asia.

China has been cracking down on gambling on the mainland but is yet to explain the Crown arrests, except to say they were for suspected “gambling crimes”.

It is also yet to charge the Crown employees, which include the company’s head of international VIP sales.

Star shares were flat on Thursday, in line with the broader Australian market. Since the China arrests, Star shares have fallen 17 percent, while the broader market has risen 6 percent.

Crown shares, which have lost about 10 percent since last October, were up 0.7 percent on Thursday.

$1 = 1.2972 Australian dollars Reporting by Byron Kaye; Editing by Stephen Coates

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