Leisure:Casinos hurt as THAAD tensions keep Chinese home

Earnings to miss: We believe foreigner-only casino companies Paradise
and GrandKorea Leisure will post 2Q17 operating profits below consensus
estimates, their dropsuffering from a lack of Chinese visitors amid a
cooling of Sino-Korean relations due tothe THAAD deployment. Adverse
conditions could last through this year—travel agenciesdo not expect
inbound Chinese travel to rebound until 1Q18 at the earliest.
KangwonLand’s sales and operating profit likely shrank y-y in 2Q17 (as
in 1Q17), though the lattershould meet consensus.

    Lack of Chinese punters punishing market: We believe total drop at
Paradise’sfive and GKL’s three sites fell 12% y-y in 2Q, with Chinese
VIP drop plunging 30% y-ywhile drop from Japanese and other
nationalities grew a respective 11% and 5% y-y. Wenow estimate that
GKL’s total drop for the quarter slipped 7% y-y, with its overall
VIPdrop down 5-10% y-y. At Paradise, drop from Japanese and other
nationalities likely rosea respective 25% and 16% y-y, but we estimate
that total drop fell 16% y-y, punctuated bya 40% y-y plunge in Chinese
VIP drop (which represents 60% of the firm’s total).

    Paradise City unlikely to break even unless Chinese come: Even if it
takesmarket share from GKL, Paradise City (Paradise’s Incheon site) is
unlikely to break evenunless the casino market expands at a CAGR of at
least 10% for at least two years—whichwe see as impossible if Chinese
drop keeps falling. Slower growth in the market wouldmean higher
competition costs (and lower hold ratios), cannibalization among sites,
andlikely more outlays to lure mass-market customers. Given these
concerns, we revise downour 12-month target price for Paradise by 13% to
KRW16,500, based on the 2018 Macaucasino average EV/EBITDA of 14x.

    Kangwon Land—y-y downtrend to continue: We expect Kangwon Land to
postsluggish sales and operating profit for 2Q17 (as it did in 1Q17).
Another y-y contraction insales is likely in 3Q17, when there is only 1
holiday (vs 4 in 3Q16). We believe factors otherthan economic elements
were behind its lackluster 1H17, which came even amid strongconsumption
and business conditions for travel agencies. We lower our 12-month
targetprice for Kangwon Land by 7% to KRW42,000 (based on 20x 2017-2018
average P/E) toreflect this, but reiterate BUY on the stock in
anticipation of growth sparked by theopening of a water park planned for
2H18.

相关文章

发表评论

电子邮件地址不会被公开。 必填项已用*标注

*
*
Website