GKL facing tough competition from Paradise City: Daiwa

Aug 03, 2017 Newsdesk Latest News, Rest of Asia, Top of the deck  

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South Korean gaming operator Grand Korea Leisure Co Ltd (GKL) is likely to face tough competition from the recently-opened Paradise City casino resort in the remainder of 2017, said brokerage Daiwa Securities Group Inc.

Analyst Thomas Kwon wrote in a Tuesday note that the brokerage expected GKL “to face tough competition in luring regional gamers as Paradise City in [South] Korea ramps up operations in 2017”.

Casino resort Paradise City, developed by South Korea’s foreigner-only casino operator Paradise Co Ltd and Japanese pachinko operator Sega Sammy Holdings Inc, is located near Incheon International Airport. The first phase of the casino scheme opened on April 20. The property welcomed about 310,000 visitors in its first 100 days of operation, according to local media reports.

JP Morgan Securities (Asia Pacific) Ltd also listed the “stronger-than-expected pressure” from Paradise City as a potentially negative for GKL this year, according to a Tuesday memo.

Analysts DS Kim and Sean Zhuang however noted that GKL’s third quarter trends – following the full-month of July – “appear solid”. But they warned: “This quarter-on-quarter momentum would merely be an ‘optical’ recovery from a very bad second quarter, and we believe there’s nothing really to be excited about, as full-year operating profit (reflecting a likely strong third quarter recovery) would still be just in line with consensus.”

GKL reported weaker-than-expected second quarter results due to “a decline in visitor traffic, casino [table] drop and hold ratio,” said Daiwa’s Mr Kwon. “GKL saw lower casino traffic in the second quarter, especially from Japan (VIP gamers) and China (casual gamers),” he added.

On Tuesday, GKL said its operating income for the three months to June 30 fell by 43.8 percent year-on-year, to KRW17.63 billion (US$15.6 million). The firm reported a 39.8 percent year-on-year decline in net income for the period, to KRW15.42 billion.

GKL operates three foreigner-only casinos in South Korea under the Seven Luck brand, two in the capital Seoul and one in the southern port city of Busan.

Daiwa’s Mr Kwon said the casino operator recorded “weak casino drop” for the second quarter of 2017, down 5.6 percent from the prior-year period. The company had also a lower hold ratio during the reporting period, at 11.4 percent, compared to 12.7 percent in the second quarter of 2016, according to the brokerage.

“We expect GKL to regain its casino-sale growth momentum from the second half of 2017 by diversifying its visitor mix and pursuing a disciplined cost strategy,” said Mr Kwon.

The Daiwa analyst noted that the casino operator is striving to attract premium mass customers from Japan and other Asian countries, “by leveraging on the competitive advantage of its casino location and increased casino capacity in Busan”.

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