GGRAsia – Paradise Co EBITDA break-even likely in 3Q: brokerage

Paradise Co EBITDA break-even likely in 3Q: brokerage

Aug 12, 2020 Newsdesk Latest News, Rest of Asia, Top of the deck

Paradise Co Ltd, an operator of foreigner-only casinos in South Korea, is likely to reach break-even in terms of earnings before interest, taxation, depreciation and amortisation (EBITDA) in the third quarter. That is according to a forecast published on Tuesday by brokerage JP Morgan Securities (Asia Pacific) Ltd.

“Our analysis suggests Paradise Co’s top line should recover to approximately 75 percent of 2019 levels [for the firm] to reach operating profit break-even, which we think is highly unlikely in the next few quarters,” wrote analysts DS Kim, Derek Choi and Jeremy An.

They added: “But, given solid demand for non-gaming (led by locals) and further operational expenses control, we do think Paradise Co can turn EBITDA break-even from the next quarter, and free cash flow break-even from the fourth quarter of 2020 or first quarter of 2021.”

The brokerage stated Paradise Co’s management had indicated further operating expense cuts were on the way in the second half of 2020, “especially in the fourth quarter, as the company has started to offer early retirement for its staff, starting this summer.”

Paradise Co saw its second-quarter net loss rise to nearly KRW31.88 billion (US$26.9 million), widened from KRW2.46 billion in the opening three months of 2020, and from KRW2.06 billion a year earlier. In a presentation published on Tuesday, the company said its gaming and non-gaming sales for the April to June period plunged amid the Covid-19 pandemic.

The group’s second-quarter EBITDA was negative KRW18.26 billion. That compares with positive EBITDA of nearly KRW32.40 billion in second-quarter 2019, and KRW31.56 billion in the first three months of 2020.

In its Tuesday note, JP Morgan said Paradise Co’s second quarter results had been “disappointing”. The brokerage stated that the casino operator’s current business came “mainly from local expats (i.e., foreigners living in [South] Korea and [South] Koreans with foreign passports) as the level of inbound gamblers remains virtually zero amid strict border controls, both in Korea as well as from key source markets” related to Covid-19.

The institution noted that there was still no “meaningful update regarding the easing of border/travel restrictions with key source markets, such as China and Japan,” making it hard to predict “with any accuracy” Paradise Co’s “outlook and timing/pace of recovery”.

Paradise Co had closed down on March 24 its four casino sites for two weeks, in line with South Korea’s effort at curbing the further spread of the Covid-19 pandemic in the country. Some of the company’s non-gaming offerings – such as entertainment venues – were also closed. The group reopened its casino on Jeju island on April 13. It later resumed operations at its remaining three gaming venues on April 20.