GGRAsia – Leisure tax concerns on Kangwon Land overdone: analyst

Leisure tax concerns on Kangwon Land overdone: analyst

Dec 07, 2015 Newsdesk Latest News, Rest of Asia, Top of the deck

Brokerage Daiwa Securities Group Inc said it believes concerns about the likelihood of a leisure tax being imposed upon Kangwon Land, in the wake of weak VIP gaming sales in the third quarter of 2015, “are overdone”. Kangwon Land Inc operates the only casino resort (pictured) in South Korea where the country’s nationals are allowed to gamble.

“We doubt Kangwon province’s renewed focus on a controversial leisure tax will amount to much in the near future, and believe any bill would again face strong opposition from various interest groups,” wrote Daiwa’s analyst Thomas Y. Kwon, referring to a proposed initiative by the local government.

He added: “Moreover, in deciding whether to submit the bill or not, the local government would likely take into consideration the company’s current tough business environment, its high existing tax rate, its need for capex [capital expenditure] for non-casino services, and its ongoing investment in the local economy.”

According to an April 2013 report by analysts at Korea Investment and Securities Co Ltd, Kangwon Land has since 2012 paid what is known as individual consumption tax levied at 5 percent of casino sales; and also makes payments to tourism promotion and development funds at a rate of 10 percent of casino sales.

Commenting on the outlook for Kangwon Land’s casino operations in the next few years, Daiwa’s Mr Kwon said he expects the resort’s utilisation rate for new gaming tables to rise in both 2016 and 2017, “from around 70 percent currently”, as the casino operator added 210 more casino staff earlier this year.

Kangwon Land is also likely to benefit from higher numbers of visitors, given “improved accessibility to the casino resort after a new highway is completed in 2016 and the express railway is finished in 2017,” said Mr Kwon.

The brokerage is forecasting Kangwon Land’s revenue to rise by 11.8 percent year-on-year to KRW418 billion (US$2.86 billion) in the fourth quarter, while operating profit is expected to grow by 16.4 percent year-on-year to KRW139 billion.

The casino operator reported net income of KRW119.0 billion for the third quarter of 2015, up by 12.8 percent from the prior-year period.

Daiwa’s Mr Kwon said despite investor concerns about the potential imposition of a leisure tax, the brokerage still expects Kangwon Land’s casino revenue “to rise at a CAGR [compound annual growth rate] of 8.6 percent for 2014-17E, on the back of a gradual ramp-up in the table utilisation rate and improving visitor mix (with more casual gamers)”.