GGRAsia – Kangwon Land shrugs off MERS gloom in 2Q: analyst

Kangwon Land shrugs off MERS gloom in 2Q: analyst

Jul 14, 2015 Newsdesk Latest News, Rest of Asia, Top of the deck

Kangwon Land Inc, the operator of the only casino resort in South Korea where the country’s nationals are allowed to gamble, is likely to see its revenue and operating profit rise year-on-year in the second quarter, said a note on Monday from Daiwa Securities Group Inc.

The likely improvement is despite a nationwide health alert in June over an outbreak of Middle East Respiratory Syndrome, known as MERS, that badly hit the country’s air travel industry and its inbound tourism market.

“We forecast the company’s revenue to rise by 12.8 percent year-on-year to KRW401 billion [US$352.4 million] and its operating profit to go up by 14.9 percent year-on-year to KRW142 billion, helped by it effectively controlling SG&A [sales, general and administrative costs] and the absence of one-off costs,” wrote analyst Thomas Y. Kwon, referring to Kangwon Land’s performance in the second quarter.

“From our recent visit to Kangwon Land, we learned that the casino operator is taking advantage of its dominant position in the Korean-only casino gaming market, even given the unfavourable (in terms of visitors) operating environment as a result of the Middle East Respiratory Syndrome (MERS) outbreak in the country,” added Mr Kwon.

Paradise Co Ltd – a South Korean operator of foreigners-only casinos – saw its first half casino sales fall 14 percent year-on-year in the six months to June 30. But the rate of year-on-year decline in casino sales in June for Paradise Co reached 50.2 percent, that firm said in a filing to the Korea Exchange on July 6.

The overall number of air travellers in the South Korea market plunged 19.5 percent year-on-year in the first three weeks of June, according to the Ministry of Land, Infrastructure and Transport.

Kangwon Land (pictured) is located in an upland area of Kangwon province, 150 kilometres (93 miles) from the country’s capital Seoul.

Daiwa noted that Kangwon Land recently won official approval to add 68 new gaming tables to its inventory, which it thinks might provide improvements to earnings in the second half of 2015 and into 2016 if management of the casino continues to improve.

“We got the impression that the company is comfortable with the current [table] utilisation rate of around 70 percent (82 percent at the peak on weekends and 60 percent on weekdays), given that it is controlling overall headcount and labour costs more effectively than in the past,” said Daiwa.

South Korea’s gambling and lottery industry in 2014 posted its ninth consecutive year of year-on-year sales growth. But the rate of year-on-year growth in gambling-related sales was sluggish at 1 percent. Kangwon Land’s 2014 revenue performance far outstripped that of the rest of the national market, expanding 10 percent year-on-year.