GGRAsia – Grand Korea 1Q net profit slips 14 pct on upped costs

Grand Korea 1Q net profit slips 14 pct on upped costs

May 12, 2015 Newsdesk Latest News, Rest of Asia, Top of the deck

Grand Korea Leisure Co Ltd (GKL), which operates three foreigners-only casinos in South Korea under the Seven Luck brand, reported its first quarter 2015 results after market close on Monday. Net profit for the three months to March 31 dropped by 14.4 percent year-on-year to KRW32.16 billion (US$29.4 million) due to increased non-operating costs, the firm said.

“It saw a sharp rise in costs for complimentary services (up 22 percent year-on-year),” said a note on Monday from Thomas Kwon, an analyst at Daiwa Securities Group Inc, referring additionally to the costs Grand Korea incurs in recruiting and retaining players.

The firm has two casinos in the country’s capital Seoul, and one in the southern port city of Busan.

“VIP gamers [gamblers] accounted for 10 percent of total visitors for GKL in the first quarter of 2015, while Chinese gamers accounted for 41 percent of total visitors and 57 percent of the total drop” in the period, said Mr Kwon.

In the casino industry, drop indicates the amount of money paid – or credit issued – in exchange for gaming chips.

Grand Korea’s revenue for the period grew by 6.9 percent year-on-year to KRW149 billion. Operating profit rose by 3 percent year-on-year to KRW48.6 billion, but operating-profit margin dropped slightly to 33 percent, from the 34 percent achieved in the year-prior period.

According to data from the Korean Casino Association, quoted by another casino operator, Grand Korea had a share of 41.4 percent of the country’s gaming market in terms of casino sales in the first quarter.

GKL saw a big increase in the number of mass-market gamblers from China in its venues during the three months to March 31, said Daiwa.

“The total number of casual gamers at GKL from China and Japan rose by 45 percent year-on-year and 11 percent year-on-year, respectively, in the first quarter of 2015, while the number of total VIP gamers grew by 34.1 percent year-on-year as GKL benefitted from better accessibility to its two casinos in Seoul,” stated the brokerage’s Mr Kwon.

The Korea Exchange-listed Grand Korea first had a partial flotation on the public markets in November 2009. The company was established in 2005 as a subsidiary of the state-owned Korea Tourism Organization.

“We expect GKL to capitalise on solid casino-gaming demand from the region by expanding its casino floor at Gangnam (up 40 percent) in the second half of 2015 and likely adding more casino tables at Busan in 2015,” said Daiwa, referencing initially the firm’s casino in an upmarket district of Seoul.

“Meanwhile, we doubt its business growth initiatives for cruise casino liners could pay off in the near term, but hope GKL provides a clear roadmap to integrated resorts to ride on the next upturn in the regional casino-gaming industry,” said Mr Kwon, referring firstly to a South Korean government plan to boost the country’s casino cruise sector, and secondly to the opportunity to build large scale casino resorts.

In January, the government said it would be willing to issue up to two new licences for such projects as the country seeks to boost its tourism industry and capture the discretionary spending of Chinese and Japanese visitors ahead of any possible legalisation of casinos in the latter country.