Kangwon Land Inc, the operator of the only casino in South Korea permitted to offer bets to locals, is “already entering positive cash-flow territory,” despite its gaming facilities having undergone “multiple… closures and reopenings this year,” says a note from JP Morgan Securities (Asia Pacific) Ltd.
The institution’s analysts DS Kim, Derek Choi and Jeremy An stated in the Wednesday memo: “More meaningful reopening has commenced since 16 October when mass tables were opened, and early trends have been very encouraging so far, despite heavy restrictions (cap on concurrent players, ban on standing bets) and reduced seating capacity (about 50 percent).”
On Wednesday, the casino operator reported sales of KRW76.62 billion (US$68.9 million) in the three months to September 30, down 81.1 percent from the prior-year period, but up 121.2 percent sequentially.
The firm’s resort, Kangwon Land (pictured), is about 150 kilometres (93 miles) from the country’s capital Seoul.
Kangwon Land Inc might see its gross gaming revenue (GGR) rising to half of 2019 levels in the fourth quarter this year, before reaching a full recovery in 2022, suggests JP Morgan.
“For the past 24 days, both slot and mass table GGR have recovered to about 50 percent of last year’s, and VIP GGR is actually back to circa 90 percent of last year’s (since VIPs are less affected by reduced capacity and distancing rules anyway,” wrote JP Morgan.
“This reinforces out belief that revenue for this monopoly casino is a function of capacity/supply (as opposed to end-demand) almost regardless of distancing rules and restrictions, and that pent-up demand is very real for casinos (as we saw from other reopened jurisdictions such as [in] the U.S., Singapore, Australia, Cambodia, etc, with the exception of the Macau SAR),” the analysts added.
They estimate Kangwon Land’s GGR will rise in the fourth quarter to 50-percent of quarterly pre- Covid-19 levels, and gradually increase to 90 percent in the final quarter of 2021 before hitting “100 percent” in 2022. Their forecast assumes further easing of rules on seating capacity and the cap on the number of players.
“…our analysis suggests that Kangwon Land can reach earnings before interest, taxation, depreciation and amortisation (EBITDA) break-even with around 50 percent of pre-Covid-2019 GGR, which in fact is the level that the company is already witnessing in recent weeks,” the JP Morgan team wrote, noting that would mean the company is entering “positive cash-flow territory”.
The JP Morgan team highlighted Kangwon Land’s third-quarter operating expenses cash-wise had gone down about 10 percent quarter-on-quarter. It has estimated the South Korean firm will record a net loss at KRW250 billion (US$224.8 million) for the fiscal year 2020.
