Q2 Consecutive Losses... Casino Stocks Sigh Deeply

Losses from COVID-19 Business Suspensions at Kangwon Land and Paradise... Bleak Prospects for Performance Recovery in the Second Half of the Year

[Asia Economy Reporter Song Hwajeong] Due to the impact of the novel coronavirus infection (COVID-19), casino-related stocks turned to losses one after another in the second quarter of this year. As the COVID-19 situation is prolonged, it is expected that performance recovery in the second half of the year will not be easy.

According to the Financial Supervisory Service's electronic disclosure system on the 12th, Kangwon Land recorded an operating loss of 103.812 billion KRW on a consolidated basis in the second quarter. Sales decreased by 90.5% to 34.633 billion KRW, and net loss also turned to a deficit at 45.56 billion KRW.

Seong Junwon, a researcher at Shinhan Financial Investment, said, "From February 23 to July 19, almost all facilities including general tables, machine games, and hotel water parks suspended operations, causing second-quarter performance to fall short of consensus." He added, "The most important indicator at this point, casino visitors, was only 2,364 VIP customers, which is a 99.6% decrease compared to the same period last year."

Paradise also turned to a loss. Paradise recorded an operating loss of 44.56 billion KRW in the second quarter. Sales decreased by 68.1% to 74.636 billion KRW, and net loss also turned to a deficit at 48.658 billion KRW. Park Eun-kyung, a researcher at Samsung Securities, analyzed, "Paradise temporarily closed from March 24 to April 20, and even after reopening, measures such as a two-week self-quarantine for overseas arrivals limited actual demand to foreign residents in Korea, causing sales to plummet." She added, "Although labor and marketing costs were drastically reduced, the fixed cost burden of Paradise City was high, so operating losses could not be avoided."

GKL recorded an operating loss of 32.1 billion KRW in the second quarter, turning to a deficit. Sales decreased by 80.2% to 23.263 billion KRW. Ji Inhye, a researcher at Hanwha Investment & Securities, explained, "GKL recorded its first quarterly loss in the second quarter, significantly missing consensus." She added, "This is due to negative leverage caused by a roughly 80% decrease in both drop amount (the amount casino customers exchanged for chips) and sales compared to the previous year due to COVID-19."

As the COVID-19 situation prolongs, performance recovery in the second half of the year is also difficult. Securities firms have consecutively lowered earnings forecasts for casino companies. Samsung Securities downgraded profit forecasts for Paradise and GKL compared to previous estimates. Paradise's sales were revised down to 449.4 billion KRW with an operating loss of 93.8 billion KRW, and GKL's sales were revised down to 229.4 billion KRW with an operating loss of 51.7 billion KRW. Sales are expected to decrease by more than 50% compared to the same period last year, and operating profit is expected to turn to a loss on an annual basis as well.

Researcher Park said, "Entry and exit restrictions are expected to continue until vaccine distribution, which is anticipated as early as the end of next year, so the timing for performance normalization to last year's level will be at the earliest next year." He added, "Based on this, we lowered profit forecasts." Shinhan Financial Investment also lowered Kangwon Land's profit forecast for this year from a deficit of 311.7 billion KRW to a deficit of 390.4 billion KRW. Researcher Seong said, "Due to COVID-19, the average daily casino visitors are about 1,800 to 2,000, which is 20-25% of the three-year average of 8,060 visitors. The visitor control at about 20% of the usual level is very likely to continue until early to mid-next year." He added, "Only when visitor restrictions are eased or removed can substantial performance improvement be possible."

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