South Korean casino operator Paradise Co Ltd and its Japanese partner for Paradise City – a new foreigner-only casino at Incheon – are to work together to draw non-Chinese customers to the venue.
So said analyst Thomas Kwon of Daiwa Securities Capital Markets Korea Co Ltd, after a Paradise Co management briefing for investment analysts held at Paradise City on Wednesday.
Paradise City (pictured in an artist’s rendering) is being developed in collaboration with Japan’s Sega Sammy Holdings Inc, and is due to have a first-phase launch on April 20.
Daiwa said phase one will have a casino with 154 tables – including 22 junket tables – plus 281 slot machines and 62 electronic table games.
According to some investment analysts, the South Korean market for inbound tourism is currently facing headwinds due to a political row between that country and China over the siting on South Korean soil of a U.S.-supplied missile system designed to counter North Korea’s ballistic missile programme.
In a March 6 note, analyst David Bain of Aegis Capital Corp, said Macau might benefit from any displacement of mainland Chinese tourists from the South Korea market.
But according to Daiwa’s Wednesday memo, Paradise Co – a specialist in serving foreign VIP gamblers – is likely to see only a 6.2 percent year-on-year decline in 2017 in the number of Chinese high rollers it serves. Daiwa forecasts the firm to have 64,800 Chinese VIP guests in 2017. Nonetheless that would still represent a 42.2 percent decline on the 112,100 Chinese VIP guests Paradise Co entertained at its existing casinos during the peak year of 2014, according to data quoted by the brokerage.
Daiwa’s Mr Kwon wrote in his Wednesday memo: “Strategically, Paradise [Co] plans to work with Sega Sammy, a major shareholder (45 percent stake) in Paradise City, to lure more Japanese and non-China gamers (from other Asian countries such as Thailand).”
He added: “Despite a sharp rise in initial capex [capital expenditure] for Paradise City, we expect Paradise [Co] to capitalise on thriving demand for both casino gaming and other non-casino attractions at the resort from second quarter 2017, thanks to its first mover advantage, rising visitor numbers and non-gaming revenue.”
The Daiwa report didn’t specify the aggregate capital budget for Paradise City. But it noted that – according to data from FactSet Research Systems Inc and Daiwa forecasts – for the three years to December 31, 2016, Paradise Co had capital expenditure totalling KRW863 billion (US$758.1 million), compared to the total of KRW37 billion it spent in 2012 and 2013. Daiwa estimated Daiwa’s capital spending for 2017 and 2018 would be a further KRW335 billion in aggregate.
Daiwa stated: “The CEO of Paradise [Co], Mr Park Pyung-yong, highlighted that Paradise City is best poised to capture rising demand for IR [integrated resorts] and related amusement content in the region, due to its location, appealing K-pop [South Korean music artist] content and luxury resort facilities.”
Paradise Co told analysts that – with the aid of its new facility Paradise City – the group’s revenue target for 2017 was KRW880 billion, i.e., 27 percent year-on-year expansion, and KRW1.1 trillion in 2018, an increase of 25 percent year-on-year.
“Paradise [Co] expects Paradise City to record an operating loss in 2017 due to high operating costs related to the casino opening, but believes its first IR will see strong earnings growth from 2018, thanks to strong operating leverage and reduced costs for existing casinos,” wrote Mr Kwon.
“The company expects Paradise’s revenue growth to accelerate in 2H18 as it completes phase two of Paradise City,” added the Daiwa analyst.
According to the brokerage, phase one’s non-gaming includes 711 hotel rooms – including two pool villas – and a convention centre. Phase two, due in the first half of 2018, will include: a train station that will link it to a high-speed service to and from Incheon International Airport, two stops away; a shopping plaza including a luxury boutique hotel; and a family theme park.
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