Kangwon Land Inc, the only casino operator in South Korea authorised to let locals gamble, is likely to see annual growth in its casino gross gaming revenue (GGR) further constrained, as the government seeks to limit revenue expansion for all forms of locals-focused gambling, says a Sunday note from JP Morgan Securities (Asia Pacific) Ltd.
Kangwon Land (pictured) – based in a remote upland area 150 kms (93 miles) from the capital Seoul – posted a 10 percent decline in revenue for the July to September period.
JP Morgan said in an August note that the casino operator had this year already been under political pressure to moderate the growth of its revenue.
The brokerage’s latest assessment on the business outlook for Kangwon Land comes after the South Korean government last week announced a proposal referred to as the “Gambling Industry Reform Plan”.
“The plan includes four major initiatives, one of which effectively targets Kangwon Land by redesigning the revenue cap policy (RCP) with heavier penalties and stricter legal enforcement,” wrote analysts DS Kim and Sean Zhuang.
The brokerage said the revenue cap policy was first introduced in 2008 by South Korea’s National Gambling Control Commission as a way of regulating legal gambling industries available to locals – including Kangwon Land’s casino; lotteries; and horse racing – by setting what the authorities considered an acceptable maximum level of consumer demand.
The JP Morgan analysts stated that each year, the revenue cap for the locals-focused gambling industries was calculated as a proportion of gross domestic product (GDP), and since 2014 had been held at 0.54 percent of GDP, with the allowed increase being “allocated” across seven different industries by the National Gambling Control Commission.
“Interestingly, Kangwon Land… is the only industry among the seven that had violated the revenue cap in recent years,” wrote the JP Morgan team.
According to its research – quoting data from the commission – for 2016, Kangwon Land’s revenue cap was KRW1.44 trillion (US$1.32 billion), but its actual revenue was nearly KRW1.63 trillion.
“The government’s Gambling Industry Reform Plan clearly points to further regulatory tightening and increasing oversight on local gambling, and we believe Kangwon Land has no choice but to keep curbing its revenues to avoid further scrutiny,” it added.
The brokerage further noted: “Even in a bull-case scenario of the plan failing to pass the National Assembly, we believe Kangwon Land would still try to lay low and curb revenue to avoid further regulatory reaction, basically repeating what it’s done this year.”
JP Morgan added: “Either way, we think Kangwon Land won’t allow its business to grow faster than GDP, which can be seen as a politically acceptable level of growth for gambling; we foresee its growth to be effectively capped at approximately 3 percent per annum at best, possibly throughout this [current] administration.”
In early December it emerged that a former chief executive at Kangwon Land had been formally arrested on charges of influence peddling while in post.
Choi Heung-jip, who reportedly led the state-run enterprise between mid-2011 and early 2014, was accused of hiring favoured and sometimes underqualified people to work at the Kangwon Land casino resort ahead of other job candidates, at the request of politicians or other people of note.
