[Weekend Money] Profitable Casino Stocks Falter... Investment Sentiment Cools on Fund Hike Concerns

Profit Forecasts for Three Casino Operators Decline Amid Concerns
Complex Legal Amendments Required, Making Short-Term Implementation Unlikely
“Peak Third-Quarter Performance Still Expected to Hit Record Highs”

Following news that the government is seeking to increase the Tourism Promotion and Development Fund levy, investor sentiment in the domestic foreigner-only casino industry has significantly cooled. However, securities analysts point out that, given the favorable exchange rate environment and strong fundamentals, there remains clear medium- to long-term potential for share price gains.

Casino Stock Prices Plunge Across All Three Listed Operators as Fund Levy Hike is Reported

Recently, Hyunji Lee, a research analyst at Eugene Investment & Securities, explained, "Currently, casinos must pay 10% of their total annual gross gaming revenue in excess of 10 billion won to the fund, but a plan to raise this rate to 15% is under consideration." On July 15, shares of all three listed casino operators—Lotte Tour Development (-14.6%), Paradise (-13.5%), and Grand Korea Leisure (GKL) (-10.8%)—plunged by double-digit percentages on the stock market.

Analyst Lee added, "As of last year, excluding Inspire, all six of the top mainland casino venues were operated by Paradise and GKL. Although for Lotte Tour Development, the relevant fund contributions are paid not to the Ministry of Culture, Sports and Tourism but to Jeju Province, meaning a separate amendment to local ordinances is required, ultimately, the outlook is similar: the likelihood of deteriorating profitability for all listed foreigner-only casino operators is high."

She further noted, "Based on our estimates, this year’s expected fund contributions for foreigner-only casinos are approximately 95 billion won for Paradise, 60 billion won for Lotte Tour Development, and 46 billion won for GKL. If the levy rate is increased to 15%, the additional amounts to be paid would be about 47 billion won for Paradise, 30 billion won for Lotte Tour Development, and 23 billion won for GKL. As a result, operating profit is projected to decrease by 20–30% compared to previous estimates."

"Second-Half Industry and Earnings Remain Strong...Share Price Correction Viewed as Excessive"

However, the analyst forecasted that it would take considerable time before the new policy is actually implemented. "As casino revenue increases, the fund obligation also grows proportionally, thereby raising costs. Nevertheless, since revisions are required to the Tourism Promotion Act and its enforcement ordinance, as well as the Jeju Special Act and local regulations, the process is lengthy and unlikely to take effect in the short term." She emphasized that it will be necessary to monitor future detailed disclosures and respond accordingly.

Accordingly, she assessed that the current situation should be seen as a short-term share price adjustment driven by psychological negatives rather than actual earnings damage. She cited that the operating strength of all three casino operators is at its highest level ever.

Lee noted, "Unlike Macau, where growth is slowing, Korea’s foreigner-only casinos posted robust drop growth (the amount customers exchanged for chips) in the second quarter. Supported by a favorable exchange rate due to the weaker won, both VIP and mass market customers are entering at stable rates. In particular, during the peak travel season of the third quarter, Lotte Tour Development and Paradise are both expected to achieve all-time record results."

She added, "All three casino operators are currently trading at a 12-month forward price-to-earnings ratio (PER) of just 8 times, marking a valuation near historical lows. Given the industry conditions and projected results for the second half, the recent share price decline appears excessive."

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