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Casino industry

It’s time to buy casino stocks, analysts say

Apr 28, 2021 (Gmt+09:00)

(Source: Getty Images Bank)
(Source: Getty Images Bank)

The South Korean government’s plan to vaccinate 36 million people, or about 70% of its population, by the third quarter of 2021 is heating up interest in the country’s casino and gambling stocks.   

Kiwoom Securities on Apr. 27 has raised the target price of Kangwon Land Inc., the operator of South Korea’s only casino open to locals, by 24% from 25,000 won ($22) to 31,000 ($28) won a share.

“Once the social distancing measures are gradually relieved, Kangwon Land will attract more visitors,” said Kiwoom Securities.

Hanwha Investment & Securities projected that while Kangwon Land will report a net operating loss of 54 billion won ($48.5 million) this year, it will post an operating profit of 485 billion won ($436 million) in 2022.

“As Kangwon Land holds a monopoly position as the only casino open to Korean citizens, it will see a sharp turnaround once the pandemic is over,” said Hanwha Investment & Securities.

Grand Korea Leisure Co. (GKL), a subsidiary of the Korea Tourism Organization under the Ministry of Culture, Sports and Tourism, which runs casinos for foreigners only, is also expected to see a sharp rise in its stock price.

GKL’s main customers are Chinese tourists, still under travel restrictions since February 2017 due to the Chinese government ban on Korean content as a countermeasure to Korea's decision to deploy the US anti-missile defense system (THAAD).

But the analysts note that the government ban only restricts group travel and does not apply to individual travelers.

“Casino VIPs will resume overseas travel earlier than the wider population,” Kiwoom Securities explained in raising the target price of GKL from 17,500 won ($16) to 20,000 won ($18) a share.

Private companies like Lotte Tour Development Co. and Paradise Co. have stayed relatively strong in facing the pandemic, as their hotel business soared due to a high number of local visitors.

In the pandemic era, visiting hotels for privacy and relaxation has become a popular trend in Korea among young and older citizens alike.

Kiwoom estimated that Lotte Tour’s operating profit will reach 49 billion won ($44 million) in 2021, making a positive turnaround from last year’s net operating loss of 71.4 billion ($64 million). The securities firm also projected that the company’s 2022 profit will mark 111.2 billion won ($100 million).

On Paradise, Meritz Securities noted that the company has “significantly cut its labor cost by reducing the number of employees in its non-casino businesses. While most travel and leisure companies underwent organizational restructuring last year, Paradise tops in cost-reduction figures.”

Meritz is forecasting that Paradise will make a profit of 98 billion won ($88 million) next year versus its loss estimate of 33.3 billion won ($30 million) this year.

Write to Tae-hoon Lee at beje@hankyung.com

Daniel Cho edited this article.

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