GGRAsia – Paradise 2Q likely record-breaking quarter: JP Morgan

Paradise 2Q likely record-breaking quarter: JP Morgan

Jul 14, 2023 Newsdesk Latest News, Rest of Asia, Top of the deck

Earnings at Paradise Co Ltd, an operator of foreigner-only casinos in South Korea, are likely to achieve a “record-breaking quarter” in the three months to June 30, suggests a note from JP Morgan Securities (Asia Pacific) Ltd.

“We expect second quarter to be a record-breaking quarter with all-time high revenue/profits,” wrote analysts DS Kim and Mufan Shi in a Thursday memo.

Operating profit for the second quarter “could be bigger than the full- year 2019 operating profit,” according to the brokerage.

The institution estimates Paradise Co’s second-quarter operating profit at KRW59.0 billion (US$46.8 million), compared to about KRW52.0 billion in full-2019, before the onset of the Covid-19 pandemic.

Paradise Co’s operating income for the first three months of 2023 was KRW19.02 billion, with sales of almost KRW191.52 billion. The firm reported a first-quarter net profit attributable to shareholders of KRW6.99 billion.

In Thursday’s note, JP Morgan said it expected Paradise Co to book revenue of about KRW280.0 billion in the April to June period, with a net profit of circa KRW33.0 billion.

The institution analysts said it was “tough” to analyse the pace of recovery, as Paradise Co’s “reopening has been very ‘uneven’ for its three key source markets, i.e., expats in [South] Korea, Japanese and Chinese, while airlift capacity still hasn’t fully normalised”.

They added: “But even the sceptics (including our old selves, admittedly) would agree pent-up demand is very real here with surprisingly quick ramps to 100-percent-plus of pre-Covid levels, similar to what we’ve seen in other markets (such as Las Vegas, Singapore, Macau, or even the Philippines).”

“The only segment that hasn’t fully recovered is China VIPs … which didn’t stop the company from printing record-high revenues in June and second quarter 2023,” stated the JP Morgan team.

Paradise Co’s casino revenue increased by 39.5 percent month-on-month in June, to approximately KRW95.59 billion.

According to the brokerage, the casino firm “reduced its staff count by about 20 percent during the downturn, many of which were relatively senior positions with high salaries”.

“Staff costs are the single-largest cost item comprising 40-percent-plus of pre-Covid cash operational expenditure (excluding tax) for Paradise, and we estimate its group-wide operational expenditure to be 15-percent-plus below that of pre-Covid levels,” stated Mr Kim and Mr Shi.

They added: “This headcount reduction should be a significant earnings driver as Paradise arguably hadn’t been run very efficiently in the past (versus casinos in other jurisdictions).”

Paradise Co’s margins for earnings before interest, taxation, depreciation, and amortisation (EBITDA) and operating profit might, “nearly double/triple to about 25 percent and 15 percent,” respectively, in fiscal-year 2023, according to JP Morgan estimates.