[Click eStock] "GKL, Temporary Suspension and Visa-Free Entry Restrictions... Target Price Down"

[Asia Economy Reporter Oh Ju-yeon] Kiwoom Securities has maintained a 'Buy' rating on GKL, which is temporarily closed for one month from the 24th of last month to the 20th due to the novel coronavirus infection (COVID-19), but has lowered the target price to 23,000 KRW, anticipating a decline in sales and profitability.

Kiwoom Securities expects GKL's first-quarter sales to reach 110.7 billion KRW, a 1.4% increase compared to the same period last year, supported by January sales of 54.6 billion KRW and February sales of 44.0 billion KRW. Operating profit is forecasted at 20.4 billion KRW, with both sales and operating profit expected to fall short of market consensus.

The number of visitors totaled 231,000, with 29,000 VIPs, representing decreases of 45.6% and 24.1% respectively compared to the same period last year. The drop amount (the amount customers exchange for chips at the casino) was 767.5 billion KRW, down 32.2%. However, the hold rate (the casino's winning rate in games) rose by 4.8 percentage points to 14.4% compared to the same period last year, which helped mitigate the overall decline in performance.

Domestic social distancing measures and restrictions on overseas entrants are expected to impact the industry until mid-May, making the business environment difficult through the second quarter, with recovery anticipated from the third quarter.

Researcher Lee Nam-soo stated, "Considering the speed of COVID-19 containment and the friendly atmosphere between countries, demand is expected to resume first among Chinese VIPs, with Japanese VIPs anticipated to return in the second half of the year." Accordingly, he conservatively estimates second-quarter sales to decline by 67% year-on-year to 38.7 billion KRW, with an operating loss turning to 16.5 billion KRW. However, due to factors such as the deferred retaliatory demand from Chinese VIPs and the easing of COVID-19 spread in Japan, as well as the recovery of the industry, additional hiring is not expected, so a sharp increase in costs is unlikely, and recovery is expected from the third quarter.

Researcher Lee added, "To prevent the increase of foreign-origin COVID-19 infection cases, visa-free entry restrictions for 90 countries have been implemented since April 13, which has also negatively affected demand recovery. Therefore, it is a time to invest with a conservative perspective, anticipating mid- to long-term demand recovery."

This content was produced with the assistance of AI translation services.