(Adds company quote, normalised profit, China arrests)
SYDNEY, Feb 16 (Reuters) - Star Entertainment Group Ltd SGR.AX , Australia's No. 2 casino operator, posted a record first-half net profit thanks to a higher-than-expected win rate, but warned turnover from offshore gamblers was down after a rival's staff were arrested in China.
Net profit more than doubled to A$141.8 million ($109.3 million) for the six months through Dec. 31, 2016, higher than the A$118 million average forecast of analysts polled by Thomson Reuters I/B/E/S.
But the company said turnover from international VIP customers - largely wealthy Asian gamblers visiting Australia - slid 27 percent in November and December following the arrest of 18 Crown Resorts Ltd CWN.AX staff in China in October.
Excluding the fact that the company's win rate nearly doubled in the half compared with the prior first half, "normalised" net profit fell 17.7 percent to A$107.1 million, the company said.
"International VIP rebate business volume comparisons to prior year are difficult to make given the timing of Lunar New Year, but the trends experienced at the end of 1H FY2017 are continuing into the early part of 2H FY2017," the company said in a statement on Thursday.
Star, which has its flagship casino on the Sydney waterfront, and larger Melbourne-based rival Crown have been counting on growing numbers of Chinese high rollers seeking alternative places to bet amid a Beijing-led gambling crackdown on the mainland.
But that strategy has been thrown into doubt since Chinese authorities arrested the Crown staff, including its head of international VIP gambling, in October for suspected "gambling crimes." The companies sell Australian gambling holidays to Chinese "VIPs" via junket operators based in Asia. Australian companies have downplayed their reliance on VIP gamblers since the mass arrest, with Star saying less than 30 percent of its sales come from that source. Crown, which reports half-year results on Feb. 23, has said about 12 percent of its total revenue comes from Chinese VIPs.
Since the China arrests, Star shares have fallen 17 percent, while the broader Australian market .AXJO has risen 6 percent. Crown shares have dropped 11 percent.
Star posted its results before the start of trading on Thursday. ($1 = 1.2972 Australian dollars)