"Let's Hit It Big in Korea"... Foreigners Flock to 'This Place' [Weekend Money]

Visitor numbers at Korea's foreigner-only casinos rise, but
Wagers fall amid China's tougher taxation of overseas assets
Domestic policies, including higher tourism fund contributions, add to the burden

Although the number of guests visiting casinos exclusively for foreign nationals continues to rise, domestic casino stocks are moving in the opposite direction. Shares of Lotte Tour Development and Paradise, two leading domestic casino operators catering to foreign nationals, have fallen by around 40% over the past six months.

In a recent report, Choi Yong-hyun, a researcher at KB Securities, said, "The valuation de-rating in South Korea's casino industry appears to be driven by policy changes at home and abroad." In other words, the benchmark the market uses to value companies has fallen. Spending per guest has not increased, and the report attributes this in part to tax regulations imposed by the Chinese government.

Visitor Numbers Rise, but Per-Customer Bets Remain Flat Under China's Tax Regulations

Casino photo for illustrative purposes. Pixabay

Casino revenue can be broken down into the number of visitors and the drop per customer. The drop is the amount guests exchange for chips at gaming tables—in other words, their bets.

Researcher Choi said, "Visitor numbers are on the rise, but growth in the drop per customer is limited." Lotte Tour Development is a case in point. KB Securities estimates that the company's visitor numbers in the third quarter will increase by nearly 9% from a year earlier, but that revenue will fall by 5% as the drop per customer declines by 5%.

As a property market downturn has reduced local governments' tax revenues, China has tightened taxes on its citizens' overseas assets. In July, it set a 20% tax rate on income from offshore trusts—trust assets held overseas—and required taxpayers to report unpaid taxes by October 22. Tighter monitoring could prompt wealthy Chinese who place high bets to keep their wallets closed. Macau, Asia's largest casino market, has also seen revenue fall year on year for four consecutive months since June.

Higher Tourism Fund Contributions Weigh on Domestic Casinos, but They Gain Share in Asia

In South Korea, a reform proposal was put forward in July to raise the cap on contributions to the Tourism Promotion and Development Fund—a levy on a portion of casino revenue—from 10% to 15%. KB Securities estimates that this would increase the industry's annual burden by more than 150 billion won.

However, the proposed increase has not yet been finalized. Researcher Choi expects "a policy that is less stringent than the original proposal is likely." He cited the concurrent push to raise the departure fee and the prospect of fiercer competition following the opening of an integrated resort in Osaka, Japan, in 2030.

There are also positive signs. Even as Macau's revenue declined from June to September, the combined drop of South Korea's three casino operators increased from a year earlier. This indicates that South Korean casinos are gaining share in Asia.

Rebound Expected After October Reporting Deadline; Performance Likely to Vary by Reliance on China

Casino photo for illustrative purposes. Pixabay.

On China's regulations, Researcher Choi forecast that "although they are not a one-off factor, the decline in the drop should come to a halt after the October reporting deadline." He also cited the National Day holiday and the expansion of rolling tables—tables for high-stakes betting aimed at VIP customers—as potential drivers of a rebound.

Lotte Tour Development is his top pick. Because of its high proportion of Chinese guests, he lowered its target price from 23,000 won to 17,000 won. However, its current share price stands at 9.4 times its projected earnings for next year, a lower valuation than those of major overseas casino operators. Paradise's earnings are relatively stable, as VIP customers from Japan and other countries are making up for the decline in drop from Chinese VIPs.

If Chinese VIPs return after the reporting deadline and the domestic proposal is eased, earnings could regain momentum. Conversely, a further tightening of Chinese regulations or passage of the proposal in its original form would delay the recovery.

Researcher Choi said, "If China's regulations are tightened, Paradise, with its diversified customer portfolio, could be a better option," while adding that "most of the related concerns are already reflected in the current valuation."

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