[Click e-Stock] "Lotte Tour Development Still Undervalued Despite Three Consecutive Earnings Surprises... Target Price Raised"

On November 6, Hana Securities analyzed that Lotte Tour Development achieved its third consecutive earnings surprise with record-breaking results in the third quarter of this year, yet its stock price remains undervalued. Accordingly, the target price was raised by 12% from the previous level to 29,000 won.

Lee Kihun, a researcher at Hana Securities, stated, "Although the recent stock price has undergone an adjustment due to high market volatility and somewhat disappointing October sales for a peak season, the company has shown steep fundamental improvement with three consecutive earnings surprises. Furthermore, an even sharper decline in borrowings and a rising net profit cycle are expected to unfold over the next two to three years."

Lotte Tour Development's consolidated sales for the third quarter of this year reached 186.7 billion won, up 34% year-on-year, while operating profit surged by 139% to 53 billion won, exceeding the market consensus of 47.5 billion won. As a result, the company achieved its highest-ever operating profit. Hotel segment sales fell by 11% to 23.2 billion won, but the occupancy rate (OCC) rose by 22 percentage points year-on-year to 90%. However, as about half of all rooms were provided to customers as complimentary, the segment experienced negative growth. In contrast, casino segment sales reached a record-high 139.3 billion won, up 65%. The drop amount increased by 78% to 848.5 billion won, and the hold rate was 16.4%.

Net profit for the period turned positive at 6.5 billion won. Lee explained, "There were one-off expenses totaling about 13 billion won, including roughly 9 billion won in foreign exchange valuation losses on overseas convertible bonds (CB) due to the weak Korean won, and about 4 billion won in one-time premium fees related to the repayment of these CBs." He added, "Excluding these, net profit could have approached 20 billion won."

In October, casino sales reached 50.4 billion won, up 108% year-on-year. Reflecting this, fourth-quarter operating profit is projected at 44.5 billion won, and net profit is expected to be around 10 billion won. He further noted, "From November, the casino will operate with its own customers without agent sales, so unless there are unexpected variables, an additional increase in the hold rate is possible."

The leverage in Lotte Tour Development's performance stems from a significant increase in the proportion of hotel rooms provided to casino customers. Lee assessed, "The proportion of hotel rooms used by casino customers surged from 31% in the first quarter to 42% in the second quarter, and to 49% in the third quarter out of a total of 1,600 rooms, resulting in substantial performance leverage."

He stated, "Operating profit for the second half alone is expected to exceed 90 billion won, and the 2026 operating profit estimate of 183.8 billion won is sufficiently conservative." He continued, "Considering annual depreciation expenses of about 90 billion won and non-operating lease liabilities, cash flow could approach 300 billion won. Excluding some capital expenditures, this will be used to repay over 800 billion won in long-term borrowings, and unless there are unexpected variables, full repayment could be achieved by 2028 to 2029."

He also explained, "From the second half of next year, early repayment or refinancing without fees will be possible, leading to a sharp decline in financial costs. Since accumulated deficits exceed 1 trillion won, the corporate tax burden will also remain limited for the time being."

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