skycity entertainment - macquarie · plans to activate various gaming concessions are well advanced...

Please refer to page 12 for important disclosures and analyst certification, or on our website

www.macquarie.com/research/disclosures.

NEW ZEALAND

SKC NZ Neutral

Price (at 05:00, 24 Jun 2015 GMT) NZ$4.22

Valuation NZ$ 4.69 - DCF (WACC 9.4%, beta 0.7, ERP 7.0%, RFR 3.6%, TGR 2.0%)

12-month target NZ$ 4.40

12-month TSR % +9.1

Volatility Index Low

GICS sector Consumer Services

Market cap NZ$m 2,479

30-day avg turnover NZ$m 3.8

Number shares on issue m 587.5

Investment fundamentals Year end 30 Jun 2014A 2015E 2016E 2017E

Revenue m 843.7 927.5 978.0 1,054.2 EBIT m 208.0 221.6 246.2 285.0 Reported profit m 98.5 119.5 149.9 181.5

Adjusted profit m 123.2 131.7 149.9 181.5 Gross cashflow m 202.8 218.8 236.8 267.1 CFPS ¢ 34.8 37.2 40.3 45.5 CFPS growth % -4.5 6.9 8.2 12.8 PGCFPS x 12.1 11.3 10.5 9.3 PGCFPS rel x 1.08 1.08 1.10 1.03 EPS adj ¢ 21.2 22.4 25.5 30.9 EPS adj growth % -9.6 6.0 13.7 21.1

PER adj x 19.9 18.8 16.5 13.7 PER rel x 0.90 0.91 0.90 0.81 Total DPS ¢ 20.0 20.0 20.4 24.7 Total div yield % 4.7 4.7 4.8 5.9 Franking

1 % 50 50 53 52

ROA % 11.9 12.0 12.9 13.7 ROE % 15.5 17.0 19.0 21.8 EV/EBITDA x 12.1 10.6 9.4 8.4 Net debt/equity % 77.9 85.3 87.3 106.2 P/BV x 3.2 3.2 3.1 2.9 1NZ imputation credits are only able to be used by shareholders to offset NZ income tax liability.

SKC NZ vs NZSE50, & rec history

Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, June 2015

(all figures in NZD unless noted)

25 June 2015 Macquarie Securities (NZ) Limited

SKYCITY Entertainment Group Strong Auckland momentum Event

SKC’s 2H15 trading update pointed to a continuation of the strong Auckland

trading that highlighted the 1H15 result, partially offset by lower-than-expected

growth from Adelaide.

Putting these changes through the model underpins a 3.6% upgrade to FY15

forecasts.

Impact

The trading update suggested that the key Auckland property had maintained

the strong operating momentum that highlighted the 1H15 result, with 2H15

revenue growth of 10.7% (through to 24 May) excluding IB play.

The Auckland property is clearly benefitting from a relatively buoyant local

economy, strong international visitor arrivals, the enhanced food and

beverage offering and the spate of sporting and cultural events hosted by the

region.

Partially offsetting the strength of the Auckland trading was Adelaide. After a

lacklustre 1H15 trading performance (excluding IB) that SKC put down to the

impact of disruption of the final stages of the redevelopment works in the

period, we had expected a solid (ex IB) trading performance.

However, Adelaide trading (ex IB) was only up 5.2% period to date, well

below our 18% forecast. It is likely that the majority of this A$2.9m revenue

increase has been from the enhanced food and beverage offering with the

opening of the 2 new feature restaurants (Madam Hanoi and Sean’s Kitchen).

Without a doubt, the redeveloped Adelaide property is significantly enhanced,

but still lacks certain key features (car parking and a hotel) and current trading

remains disappointing.

Earnings and target price revision

FY15 EPS forecast lifted 3.6% and FY16 by 2.5%.

Price target lifted from $3.80 to $4.40

Price catalyst

12-month price target: NZ$4.40 based on a PER methodology.

Catalyst: Progress commentary on NZICC.

Action and recommendation

The core Auckland property has good trading momentum reflecting a strong

local economy, strong inbound Asian tourism and leverage to a series of

sporting and cultural events hosted by the region. However, we now expect

investor focus to shift squarely onto the opportunities and risks presented by

the NZICC and Adelaide Casino developments. Clarity over timetable, capex,

debt and trading impact from expanded product will drive investor momentum.

http://www.macquarie.com/research/disclosures

Macquarie Wealth Management SKYCITY Entertainment Group

25 June 2015 2

Analysis

Following a recent Investor Day that included a revenue update for YTD FY15 (24 May 2015), we

have reviewed our FY15 forecasts.

The trading update suggested that the key Auckland property had maintained the strong operating

momentum that highlighted the 1H15 result, with 2H15 revenue growth of 10.7% (through to 24

May) excluding IB play.

This growth rate was well above our previous 2H15 forecast of 7.5%.

The Auckland property is clearly benefitting from a relatively buoyant local economy, strong

international visitor arrivals, the enhanced food and beverage offering and the spate of sporting

and cultural events hosted by the region.

Partially offsetting the strength of the Auckland trading was Adelaide. After a lacklustre 1H15 trading

performance (excluding IB) that SKC put down to the impact of disruption of the final stages of the

redevelopment works in the period, we had expected a solid (ex IB) trading performance.

However, Adelaide trading (ex IB) was only up 5.2% period to date, well below our 18% forecast.

It is likely that the majority of this A$2.9m revenue increase has been from the enhanced food and

beverage offering with the opening of the two new feature restaurants (Madam Hanoi and Sean’s

Kitchen).

Without a doubt the redeveloped Adelaide property is significantly enhanced, but still lacks certain

key features (car parking and a hotel) and trading remains disappointing.

After putting through the upgrade on the Auckland property and the downgrade on the Adelaide

property, we have raised our FY15 normalised NPAT by 3.6%.

Fig 1 New SKC FY15 forecast

1H14 2H14 FY14 1H15 2H15 FY15 1H/1H 2H/2H FY/FY

2H guidance

Old Including IB Auckland (NZ$m) 258 275.3 533.3 302.5 302.7 605.2 17.3% 10.0% 13.5% Adelaide (A$m) 76.5 75.8 152.3 79.9 88.2 168.1 4.5% 16.4% 10.4% Total (NZ$m) 467.3 460.5 927.8 509.8 496.4 1006.2 9.1% 7.8% 8.5% Excluding IB Auckland (NZ$m) 235.6 239.1 474.7 257.5 257.1 514.6 9.3% 7.5% 8.4% Adelaide ($Am) 69.7 64.5 134.2 69.7 76.5 146.2 -0.1% 18.7% 8.9%

NPAT (normalised)

66.5 56.6 123.1 66.7 60.3 127.0 0.3% 6.5% 3.2%

New Including IB Auckland (NZ$m) 258 275.3 533.3 302.5 313.8 616.3 17.3% 14.0% 15.6% 14.5% Adelaide ($Am) 76.5 75.8 152.2523 79.9 76.4 156.3 4.5% 0.8% 2.7% 0.0% Total (NZ$m) 467.26 460.49 927.75 509.83 509.35 1019.2 9.1% 10.6% 9.9% Excluding IB Auckland (NZ$m) 235.6 239.1 474.7 257.5 262.9 520.4 9.3% 9.9% 9.6% 10.7% Adelaide ($Am) 69.7 64.5 134.2 69.7 68.5 138.1 -0.1% 6.2% 3.0% 5.2%

NPAT (normalised)

66.5 56.6 123.2 66.5 65.1 131.6 -0.1% 15.1% 6.9%

Upgrade Including IB Auckland (NZ$m) 3.7% 1.8% Adelaide ($Am) -13.4% -7.0% Total (NZ$m) 2.6% 1.3% Excluding IB Auckland (NZ$m) 2.2% 1.1% Adelaide ($Am) -10.5% -5.5% NPAT (normalised)

8.0% 3.6%

Source: Company data, Macquarie Research, June 2015


25 June 2015 3

New Zealand International Convention Centre (NZICC)

With SKC and the Crown having agreed preliminary design, the next major step will be the signing

of a binding construction contract that will trigger the activation of the gaming concessions.

The key issue with regard to the timing of this contract will be Resource Consent, specifically

whether it will be notified or non-notified.

A non-notified process is clearly much quicker and under this scenario SKC would expect to sign a

construction contract in September 2015, and have construction underway before the end of 2015.

We would estimate that a notified process would delay the timetable by at least 6 months.

SKC has provided updated capex forecasts for the NZICC project.

Fig 2 Forecast NZICC Capital Expenditure

Total NZICC cost 470

less : Land 113 Project cost remaining 357 plus: Laneway and car parks 90 Total investment in NZICC+laneway+carparks 447 Capex to expand MGF to house new product/new product purchase 50 Net NZICC project cost 497 less: car park to sell 40 Net project cost 457 Hotel (excl land) 140 JV Hotel -140 Net capex 0


SKC advised that the total project cost of the NZICC would be in the range of $450-470m

(including land).

In addition, SKC will, at its own cost, construct a new laneway space and increase the total car

parks under the NZICC to 1,415. The cost is estimated at $90m.

SKC remains committed to the development of a 300-room five star hotel on Hobson Street, with

the cost estimated at $130-140m. We now expect SKC to JV the hotel development and do not

include this capex in our forecasts.

The agreed gaming concessions (shown below) become operative following the signing of the

NZICC building works contract.

Fig 3 NZICC Concessions

Concessions Timing vs. Signed Contract

TiTo/Cashless/Bill Acceptors Effective immediately 230 new EGMs 70% within 3 months 40 new tables 22 in Stage 1 and 18 in Stage 2 240 new ATGs ~50% within 3 months Expanded red line Effective immediately Extension of venue licence to 2048 Effective immediately Gaming tax certainty for 7 years Effective immediately Harm Minimisation Initiatives well advanced

Source: Company data, June 2015

Plans to activate various gaming concessions are well advanced and split into 2 stages:

Stage 1:

70% of the new product on the existing gaming floor within 3 months of signing the building works

contract.

Only minor short-term capital works required and completed by June 2015 (capex ~$50m

including product).

Constraint on deploying all EGMs due to limited space for tables and requirement to maintain a

15:1 ratio for EGM/ATGs to tables.


25 June 2015 4

Cashless and TiTo ready for rapid deployment across main gaming floor.

Stage 2:

Need to develop new gaming spaces to accommodate remaining product.

New Horizon suites and destination sports bar with gaming product.

Infill part of the main atrium to expand MGF.

Deploy remaining EGMs and ATGs once additional tables are deployed (maintain 15:1 ratio).

For the purposes of our modelling we assume that Stage 2 occurs 12 months after Stage 1.

In the following table we summarise NZICC capex and concession assumptions.

Fig 4 Capex and Gaming concession Summary - NZICC

1H15 2H15e 1H16e 2H16e 1H17e 2H17e 1H18e 2H18e 1H19e 2H19e

Capex (includes expansion and gaming product) -$m

5.4 10 35 45 40 100 135 105 40 0

Asset sale -$m 40

Total NZICC Capex -$m

5.4 10 35 45 40 100 135 65 40 0

Starting product EGM 1608 1608 1858 1858 1877 1877 1877 1877 new 250 0 19 0 0 0 0 Closing EGMS 1608 1858 1858 1877 1877 1877 1877 1877 ATGs 39 39 119 119 240 240 240 240 new 80 0 121 0 0 0 0 Closing ATGs 39 119 119 240 240 240 240 240 Tables - MGF 100 117 117 130 130 130 130 130 new 17 0 13 0 0 0 0 - IB 10 15 15 20 20 20 20 20 new 5 5 Total 110 132 132 150 150 150 150 150 Total new 22 18 Ratio:EGM and ATG/Tables

15.0 15.0 15.0 14.1 14.1 14.1 14.1 14.1


These assumptions underpin our EBITDA forecasts for the Auckland property with risk to

forecasts lying in the timing of new gaming product and the cannibalisation impact on win/day

following the introduction of the new product.

Fig 5 Auckland Forecasts

(NZ$m) FY15e FY16e FY17e FY18e FY19e

Revenue 616 670 739 784 821 EBITDA (normalised) 252 276 310 332 348

Source: Macquarie Research, June 2015

Adelaide

Part 1 of the Adelaide redevelopment has been completed (late January 2015) and will provide the

platform for growth over the next ~3 years until Phase 2 is completed.

Phase 1 saw a refurbishment of the main gaming floor, the introduction of a segmented premium

gaming area and the opening of two signature restaurants. There are still major limitations

however, with no car parking, a modest hotel offerings and severe limitations on IB gaming space.

2H15 is the first period in which trading has not been materially impacted by construction activity

(some construction activity in Jan) and was expected to deliver some solid growth over the recent

weak comparative trading periods.


25 June 2015 5

The trading update however pointed to relatively modest revenue growth (+5% excluding IB). Of

the implied A$2.8m revenue increase for the first 5 months of 2H15, a significant portion is

expected to have come from the two new restaurants that opened to great fanfare in the period.

SKC referred to a “gradual” recovery being underway.

The trading update highlighted to the addition of the new signature restaurants, a resilient local

and international table games performance, growth in visitation and a new management team.

New Strategic initiatives

Over the next ~3 years, this new site will be the platform of growth, until the completion of Phase 2

enables SKC to offer a full and completely integrated gaming offer.

To support the completion of Phase 1, Adelaide has undergone a brand re-launch. This included

new marketing and promotional campaigns to both local and interstate customers.

Perhaps of more significance is the management team restructure that has seen SKC invest

heavily in targeted industry experience from outside Adelaide. At the Investor Day SKC stated that

that as at the end of March 2015, some 50-60% of the management team was new.

This new management team will be charged with increasing Adelaide’s current market share of

~7.5% which will necessitate an improvement in average daily win rates for tables and particularly

EGMs (Adelaide WPUPD ~40% of Auckland).

Fig 6 Adelaide EGM WPU relative to Auckland Fig 7 Adelaide Table WPU relative to Auckland

Source: Company data, June 2015 Source: Company data, June 2015

SKC is also looking to engage with the SA State Government to review the current premium

gaming qualification, with it proving difficult to qualify locals as VIPs.

Over the next 2-3 years we would expect some ongoing improvement in underlying trading and

margins, but the “game changer” will be the completion of Phase 2 (although SKC might get some

upside if it were to get access to its parking spaces slightly before the completion of Phase 2).

Phase 2

A requirement of the Approved Licensing Agreement signed in late 2013 is that the expanded and

reconfigured existing Adelaide casino and the new 6-star boutique hotel must be completed by 30

June 2109 (unless extended by agreement with the SA Government), otherwise gaming

concessions lapse.

Following the completion of Phase 2, Adelaide Casino will be a fully integrated gaming facility, with

sufficient space to enable it to house its full quota of gaming product.

It will have a highly competitive IB gaming offer supported by suitable accommodation and food

and beverage options, while the MGF and premium offer will be enhanced by access to car

parking (750 car parks from FY18), improved food and beverage, as well as the benefits of a

larger, integrated facility.

0 20 40 60 80 100 120

Auckland

Hamilton

Darwin

Queenstown

Adelaide

Auckland Hamilton Darwin Queenstown Adelaide

0 20 40 60 80 100 120

Auckland

Hamilton

Darwin

Queenstown

Adelaide

Auckland Hamilton Darwin Queenstown Adelaide


25 June 2015 6

Final concepts plans for the Phase 2 development are being evaluated internally (SKC might look

to expand the hotel offer), and SKC remains hopeful that construction will commence by the end

of 2015.

The total cost of Phase 2 is estimated at A$350m.

The following table summarises our Adelaide assumptions for capex and gaming product.

Fig 8 Adelaide Assumptions

1H15 2H15e 1H16e 2H16e 1H17e 2H17e 1H18e 2H18e 1H19e 2H19e

Capex ($NZm) 20.1 20 10 20 30 100 100 100 30 0

Starting product EGM - MGF 730 730 730 730 730 730 730 730 730 1050 new 0 0 0 0 0 0 0 320 0 Closing EGMS 730 730 730 730 730 730 730 730 1050 1050 EGM - VIP 185 185 185 185 185 185 185 185 185 450 new 0 0 0 0 0 0 0 265 0 Closing EGMS 185 185 185 185 185 185 185 185 450 450 Total EGMs 915 915 915 915 915 915 915 915 1500 1500 ATGs 65 65 65 65 65 65 65 300 new 0 0 0 0 0 235 0 Closing ATGs 65 65 65 65 65 65 65 65 300 300 Tables - MGF 60 60 60 60 60 60 60 60 60 99 new 0 0 0 0 0 0 0 39 0 - MGF closing 60 60 60 60 60 60 60 60 99 99 - VIP 15 15 15 15 15 15 15 15 15 70 new 0 0 0 0 0 0 0 55 0 - Premium closing 15 15 15 15 15 15 15 15 70 70 Total Tables 75 75 75 75 75 75 75 75 169 169 Total including ATGS

78 78 78 78 78 78 78 78 184 184

Adelaide Summary

FY15 FY16 FY17 FY18 FY19 Revenue ($A) 170 182 193 211 349 EBITDA normalised ($A)

27 31 33 39 78

margin 15.7% 17.0% 17.4% 18.5% 22.4% Revenue (NZ$) 185 190 201 229 409 EBITDA normalised (NZ$)

29 32 35 42 92


Balance Sheet

As at 1H15 SKC had net debt of $643m. This had increased to $696m as at 24 May 2015.

This represents a net debt/EBITDA multiple of 2.25x based on FY15 forecast EBITDA.

Between FY16 and FY19 we forecast SKC capex to total ~$1.09b. We summarise our forecast in

the table below.


25 June 2015 7

Fig 9 SKC Capex Forecast

(NZ$m) FY16e FY17e FY18e FY19e Total project capex

NZICC 60 125 125 50 360 Laneway and Car Parks 70 20 90 Hotel 0 Expansion of MGF and new product

50 50

Total NZICC Capex 110 125 195 70 500 Adelaide 60 150 150 30 390 Other project 10 10 10 10 40 Maintenance 50 50 50 50 200 Less; Asset sales 40 40

Total Capex 230 335 365 160 1090


This underpins our net debt forecasts that have net debt/EBITDA peaking at 3.1x in 2H18.

Fig 10 SKC forecast net debt/EBITDA trend


Net debt of $696m is comprised of $399m of bank debt and $297m of USPP notes.

The current unutilised debt funding capacity stands at $190m and SKC expects this to be

sufficient for expected funding requirements out to the start of FY18.

We note that SKC expect that net debt/EBITDA should decline slightly over this period. We have

this trend as being flat.

SKC advised that it was progressing with a NZ senior bond issue and is exploring USPP options.

SKC expects to launch the NZ senior bond issue post the FY15 result announcement (12 August).

The Company is seeking committed facilities of at least $1.0b by December 2015.

SKC will seek to maintain its current S&P BBB- investment grade rating, requiring a maximum

gearing (net debt/EBITDA) of 3.0x. SKC believes that there is some flexibility to slightly exceed

this limit when gearing peaks (SKC believe in FY19 when both major projects are expected to

complete).

Other funding options are being explored to reduce its reliance on debt. The company has

signalled its interest/intention to partner with external investors for the development/ownership of

the Hobson Street hotel.

SKC has also announced the potential divestment of the Federal Street car park (~$40m).

SKC also signalled that there were other property-related options.

2.1 2.1 2.1 2.1

2.5

2.9

3.12.9

2.7

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2H15 1H16 2H16 1H17 2H17 1H18 2H18 1H19 2H19

net debt/EBITDA (x)


25 June 2015 8

SKC Property Assets

SKC has advised that the current market value of lands and buildings is estimated at $1.39b vs.

book value (March 2015) of $0.89b.

Fig 11 SKC Property Assets

(NZ$m) Book Value Market Value

Land Auckland 229 342 Hamilton 8 9 Darwin 27 31

Total Land 264 382 Buildings Auckland 468 716 Hamilton 33 75 Darwin 130 218

Total Buildings 631 1009

Total 895 1391

Source: Company data, June 2015

While we believe that there is a certain appeal for SKC to own these assets, they do give SKC

some funding and structure flexibility.

In the following table we do some back-of-the-envelope calculations looking at some options.

Fig 12 Property options

Auckland site only

Auckland, Hamilton, Darwin sites

Current

Status quo FY19

Land Land + buildings

Land Land + buildings

Book value 229 697 264 895 Market value 342 1,058 382 1,390 Transaction costs 1% 1% 1% 1% Net proceeds from divestment 339 1,047 378 1,376 Cap rate 6.0% 7.0% 6.0% 7.0% Lease cost 20.3 73.3 22.7 96.3 Change in interest (@6%) -20.3 -62.8 -22.7 -82.6 Net change in cost (lease + int.) 0.0 10.5 0.0 13.8 PP&E 1,144 2,046 1,817 1,349 1,782 1,151 Net debt 696 1,283 944 236 905 -93 Equity 784 950 950 784 784 784 ND/ND+E 47% 57% 50% 23% 54% -13% EBITDA 308 471 ND/EBITDA 2.26 2.72 2.01 0.50 1.92 -0.20



25 June 2015 9

Based on our assumptions, if SKC were to sell the Auckland land at a cap rate of 6% we would

expect a virtual swap between lower interest costs and higher lease costs. However, this would

see periodic ground rent reviews and would generally grow with the underlying value of the land.

Such a transaction would release ~$340m in proceeds for debt reduction and would lower the

FY19 net debt/EBITDA ratio from a status quo of 2.7x to 2.0x and provide SKC with gearing

headroom.

Given the uniqueness of a casino, there are clear practical advantages to owning the building, or

to at least have full control over capex requirements. By paying a ground lease only SKC would

retain full control and flexibility over building capex and development.

If SKC were to sell the land and buildings, we think the landlord would want to sign a triple net

lease with additional maintenance requirements of such assets. However, the landlord will need to

agree to any further alterations that SKC wish to make to the premises, which we think would be

inconvenient to administer.

We think that there would be interest in the assets, particularly from large international pension

funds, with such funds having been active over the last 12-24 months.


25 June 2015 10


SKC Entertainment Group (SKC NZ) $NZm 4.22$

Profit & Loss 1H14 2H14 1H15 2H15e FY14 FY15e FY16e FY17e

Revenue (including GST)

Auckland $m 258 275 303 314 533 616 670 739

Adelaide $m 95 89 95 90 184 185 190 201

Darwin $m 83 65 80 68 148 148 145 149

Hamilton $m 25 23 25 25 48 50 51 52

Queenstown $m 7 7 7 13 14 20 20 21

Other Operations $m 0 0 0 0

Total Revenue $m 467 460 510 509 928 1019 1076 1162

Total Revenue (excluding GST) $m 844 927 978 1054

EBITDA (normalised)

Auckland $m 108 110 124 128 218 252 276 310

Adelaide $m 21 16 15 15 37 29 32 35

Darwin $m 24 17 24 19 40 43 35 36

Hamilton $m 9 8 10 9 17 19 20 20

Queenstown $m 1 1 1 2 2 2 3 3

Other Operations $m -13 -14 -19 -18 0 0 0 0

Total EBITDA $m 150 138 154 154 288 309 333 371

Adjustments -6 -25 -14 0 -31 -14 0 0

Reported EBITDA $m 144 113 141 154 256 295 333 371

Depreciation/Amortisation $m 38 41 43 44 80 87 87 86

EBIT $m 105 71 97 110 176 208 246 285

Net Interest $m 23 22 22 21 44 43 41 36

Tax $m 21 12 21 24 33 47 55 67

Reported Profit $m 61 37 54 65 98 120 150 181

Adjusted Profit $m 67 57 66 65 123 132 150 181

Cashflow Analysis 1H14 2H14 1H15 2H15e FY14 FY15e FY16e FY17e

EBITDA $m 144 113 141 154 256 295 333 371

Working Capital Investment $m 3 -18 14 0 -15 14 -6 -6

Interest Paid $m 25 24 26 21 49 47 44 50

Tax Paid $m 14 26 10 24 40 34 55 67

Other $m 0 -1 2 0 -1 2 0 0

Net Operating Cashflow $m 101 80 93 109 182 202 240 259

Capex $m 57 99 61 66 156 127 170 330

Acquisitions/Investments $m 8 4 0 0 12 0 30 0

Proceeds from sale of PPE $m 0 1 0 0 1 0 0 0

Net Investing Cashflow $m -65 -102 -61 -66 -167 -127 -170 -330

Dividend $m 46 50 39 59 95 98 115 133

Debt Movements $m 26 47 15 0 74 15 0 0

Other Movements $m 0 10 -3 0 10 -3 0 0

Net Financing Cashflows $m -19 7 -26 -59 -12 -85 -115 -133

Net Cash Movement $m 17 -14 6 -16 3 -10 -46 -204

Key Ratios 1H14 2H14 1H15 2H15e FY14 FY15e FY16e FY17e

DPS cps 10 10 10 10 20 20 20.4 24.7

EPS (normalised) cps 11.4 9.7 11.3 11.1 21.2 22.4 25.5 30.9

PER (normalised) x 19.9 18.8 16.5 13.7

Dividend Yield % 4.7% 4.8% 5.9%

EV/EBITDA x 10.6 10.2 9.6

Net Debt/EBITDA x 2.1 2.1 2.1 2.5

RoA % 11.2% 12.9% 13.7%

RoE % 17.0% 19.0% 21.8%

Balance Sheet 1H14 2H14 1H15 2H15e FY14 FY15e FY16e FY17e

Cash $m 68 54 60 60 54 60 60 60

Receivables $m 21 19 23 23 19 23 25 27

Other $m 52 42 55 55 42 55 55 56

Total Current Assets $m 141 115 138 138 115 138 141 143

PPE $m 1101 1142 1145 1167 1142 1167 1150 1134

Intangibles $m 365 538 522 517 538 517 507 497

Other $m 21 37 57 44 37 44 157 442

Total Non-Current Assets $m 1487 1717 1724 1728 1717 1728 1814 2073

Total Assets $m 1628 1831 1862 1866 1831 1866 1955 2216

Payables $m 104 120 110 110 120 110 119 127

Short-Term Debt $m 0 0 0 0

Other $m 0 11 0 0 11 0 0 0

Total Current Liabilities $m 104 130 110 110 130 110 119 127

Long Term Debt $m 554 581 627 643 581 643 688 893

Subordinated Debt $m 76 76 76 76 76 76 76 76

Other $m 103 270 264 264 270 264 264 264

Total Non-Current Liabilities $m 734 927 967 983 927 983 1029 1233

Total Liabilities $m 837 1057 1078 1094 1057 1094 1148 1360

Net Assets $m 791 774 784 772 774 861 -1148 -1360

Share Capital $m 729 738 758 758 738 758 758 758

Retained Profits/Reserves $m 62 36 26 15 36 15 49 98

Total Shareholders Funds $m 791 774 784 772 774 772 807 856


25 June 2015 11

Macquarie Quant View

The quant model currently holds a marginally positive view on SKYCITY

Entertainment Group. The strongest style exposure is Profitability,

indicating this stock is efficiently converting its investments to earnings as

proxied by ratios such as ROE, ROA etc. The weakest style exposure is

Growth, indicating this stock has weak historic and/or forecast growth.

Growth metrics focus on both top and bott…

Displays where the company’s

ranked based on the

fundamental consensus Price

Target and Macquarie’s

Quantitative Alpha model.

Two rankings: Local market

(Australia & NZ) and Global

sector (Consumer Services)

170/380 Global rank in

Consumer Services

% of BUY recommendations 45% (5/11)

Number of Price Target downgrades 0

Number of Price Target upgrades 6

Macquarie Alpha Model ranking Factors driving the Alpha Model

A list of comparable companies and their Macquarie Alpha model score

(higher is better).

For the comparable firms this chart shows the key underlying styles and their

contribution to the current overall Alpha score.

Macquarie Earnings Sentiment Indicator Drivers of Stock Return

The Macquarie Sentiment Indicator is an enhanced earnings revisions

signal that favours analysts who have more timely and higher conviction

revisions. Current score shown below.

Breakdown of 1 year total return (local currency) into returns from dividends, changes

in forward earnings estimates and the resulting change in earnings multiple.

What drove this Company in the last 5 years How it looks on the Alpha model

Which factor score has had the greatest correlation with the company’s

returns over the last 5 years.

A more granular view of the underlying style scores that drive the alpha (higher is

better) and the percentile rank relative to the sector and market.

Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group ([email protected])

Fu

nd

am

en

tals

Quant

Local market rank Global sector rank

Attractive

-1.8

-0.5

0.2

0.3

0.4

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0

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Trade Me Group

SKYCITY Entertainment Gro…

Coats Group

Sky Network Television

-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%

The Warehouse Group

Trade Me Group


Coats Group


Valuations Growth Profitability Earnings

Momentum

Price

Momentum

Quality

-1.5

0.0

-0.3

0.9

-0.4

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0

The Warehouse Group

Trade Me Group


Coats Group


-100% -50% 0% 50% 100%

The Warehouse Group

Trade Me Group


Coats Group


Dividend Return Multiple Return Earnings Outlook 1Yr Total Return

-33%

-28%

-24%

-17%

29%

29%

31%

31%

-40% -20% 0% 20% 40%

⇐ Negatives Positives ⇒

3m Earnings Revisions

3m Recom. Revisions

EBITDA Revisions 3 Month

DPS Growth FY1

Price to Book FY0

Price to Sales FY1

Price to Sales NTM

Sales to EV NTM

0 1

Technicals & TradingRisk

LiquidityCapital & Funding

QualityPrice Momentum

Earnings MomentumProfitability

Growth

ValuationAlpha Model Score

-0.78 0.02

0.22 0.01

-0.10-0.17

0.25 0.27-0.21

-0.06 0.21

0 1

Normalized

Score

0 50 100

Percentile relative

to sector(/380)

0 50 100

Percentile relative

to market(/415)


25 June 2015 12

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 31 March 2015

AU/NZ Asia RSA USA CA EUR

Outperform 48.99% 59.51% 49.30% 43.79% 59.59% 52.20% (for US coverage by MCUSA, 7.42% of stocks followed are investment banking clients)

Neutral 34.12% 26.62% 35.21% 50.29% 34.93% 31.32% (for US coverage by MCUSA, 5.68% of stocks followed are investment banking clients)

Underperform 16.89% 13.87% 15.49% 5.93% 5.48% 16.48% (for US coverage by MCUSA, 0.87% of stocks followed are investment banking clients)

SKC NZ vs NZSE50, & rec history

(all figures in NZD currency unless noted)

Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, June 2015

12-month target price methodology

SKC NZ: NZ$4.40 based on a PER methodology

Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.

Date Stock Code (BBG code) Recommendation Target Price 13-Aug-2014 SKC NZ Neutral NZ$3.80 29-Jul-2014 SKC NZ Neutral NZ$4.10 13-Dec-2013 SKC NZ Neutral NZ$4.11 14-Aug-2013 SKC NZ Neutral NZ$4.35 03-Jul-2013 SKC NZ Neutral NZ$4.78 13-Feb-2013 SKC NZ Neutral NZ$4.10 30-Aug-2012 SKC NZ Outperform NZ$3.97

Target price risk disclosures: SKC NZ: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures.

Analyst certification: The views expressed in this research reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd (ABN 94 122 169 279, AFSL No. 318062) (“MGL”) and its related entities (the “Macquarie Group”) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN 58 002 832 126, AFSL No. 238947) a Participant of the Australian Securities Exchange (ASX) and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Equities Limited (ABN 41 002 574 923, AFSL No. 237504) ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited (“MENZ”)


25 June 2015 13

an NZX Firm. Macquarie Private Wealth’s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN 46 008 583 542, AFSL No. 237502) (“MBL”) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989. Any MGL subsidiary noted in this research, apart from MBL, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary’s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group‘s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.

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