* Star profit drops 43% in H1, but beats estimate

* Co's shares rise more than 5% in early trade

* Co warns of weaker H2

Feb 29 (Reuters) - Australian casino operator Star Entertainment posted a smaller-than-expected drop in first-half profit on Thursday amid intense competition and lower discretionary spending, sending its shares sharply higher in early trade.

Shares of the cash-strapped casino operator jumped more than 5% to A$0.505 by 0015 GMT, outperforming the benchmark stock index which was down 0.2%.

Star posted A$25 million ($16.24 million) in normalised net profit after tax attributable for the six months ended Dec. 31, down 43% from the A$43.6 million reported a year earlier. However, that beat an estimate of A$15.3 million, according to LSEG data.

The profit beat comes at a time when trading conditions have been tough for the company. Competition with larger rival Crown Resorts has been intense, while compliance costs associated with Sydney operations have been consistently weighing on margins.

Revenue from Star's Sydney operations came in at A$450 million, down 16.9% from a year earlier as the company grappled with lower consumer spending and elevated remediation costs to prove it is capable of returning to suitability.

Star, which faces several lawsuits and fines over alleged breaches of anti-money laundering and counter-terrorism financing rules, expects operation costs to be higher in the second half compared with the first six months as it ramps up spending to meet its remediation milestones.

The company also said it was ready to introduce cardless and cashless play at its casinos as proposed by the Queensland government.

"We continue to be concerned about the introduction of cashless gaming and the impact on revenues in 2H24 onwards, especially considering guidance for a flat half," Jefferies analysts said in a note.

Early revenue and group earnings before interest, taxes, depreciation, and amortization in the second half were slightly lower than the prior year, Star said, while warning of a weaker second-half performance.

($1 = 1.5396 Australian dollars) (Reporting by Poonam Behura and Megha Rani in Bengaluru; Editing by Maju Samuel and Subhranshu Sahu)