Kangwon Land, Stock Price Drops Amid Multiple Adverse Factors

Concerns Over Additional Mine Closure Fund Levy Amid COVID-19-Induced Visitor Decline

[Asia Economy Reporter Eunmo Koo] The stock price of Kangwon Land continues to hit new lows day after day. This is due to concerns over additional levies arising from disagreements between the Gangwon Provincial Government, which is responsible for collection duties, and Kangwon Land regarding the calculation method of the Mine Closure Area Development Fund (Mine Closure Fund), as well as a decrease in visitors caused by the spread of the novel coronavirus infection (COVID-19).

According to the Korea Exchange on the 19th, Kangwon Land closed at 26,200 KRW, down 0.95% (250 KRW) from the previous trading day. Except for two trading days this month, Kangwon Land's stock price has fallen continuously, hitting new lows every day. On the previous day, it even dropped to 26,150 KRW during intraday trading, marking a 52-week low. The stock price has also fallen by 11.5% this year.

The recent decline in stock price is interpreted as stemming from concerns over additional levies on the Mine Closure Fund. According to the "Special Act on Support for Development of Mine Closure Areas (Mine Closure Special Act)," Kangwon Land is required to pay 25% of its pre-tax profit to the Mine Closure Fund. However, recently, a disagreement has arisen between Kangwon Land and the Gangwon Provincial Government regarding the calculation method of this fund.

From Kangwon Land's perspective, the Mine Closure Fund is classified as a selling and administrative expense, so the pre-tax profit on the income statement is calculated after deducting the payment of the Mine Closure Fund. However, the Gangwon Provincial Government holds the position that the Mine Closure Fund should not be deducted in advance when calculating pre-tax profit. According to the Gangwon Provincial Government's claim, Kangwon Land is expected to pay an additional fund of about 40 billion KRW annually.

Researcher Seongho Park of Yuanta Securities pointed out, "The issue of the Mine Closure Fund has legal dispute potential and is not something that the Gangwon Provincial Government and the seven mine closure cities and counties can unilaterally decide." He added, "If additional levies are imposed, corporate tax, which is a national tax, will decrease, and dividends to public shareholders will also be reduced, causing conflicts of interest among stakeholders."

The Mine Closure Fund also affected the decrease in operating profit in the fourth quarter of last year. Kangwon Land announced an operating profit of 65.1 billion KRW for the fourth quarter of last year on the 11th. This fell short of the market expectation of 80.3 billion KRW because non-operating income occurred, increasing the burden of the Mine Closure Fund, which is reflected in selling and administrative expenses.

Concerns over business disruptions due to COVID-19 are also negatively impacting the stock price. Kangwon Land's visitors have decreased since the Lunar New Year holiday as the COVID-19 situation worsened. Researcher Junwon Sung of Shinhan Financial Investment predicted, "Due to COVID-19, casino visitors slightly decreased, and despite it being ski season, visitors to non-casino facilities such as hotels and swimming pools also declined, making it highly likely that overall sales will experience negative growth."

However, the increase in casino revenue through slot machine replacements is a factor that raises expectations for a gradual recovery in the stock price. Despite the decrease in operating profit in the fourth quarter of last year, sales increased by 6.0% year-on-year to 372.9 billion KRW as casino revenue rose. Researcher Hwajeong Lee of NH Investment & Securities stated, "The replacement of machines has improved the speed of game progress, increasing game efficiency per unit time," and forecasted, "Since there is a possibility of additional machine replacements this year, the high growth of slot machine revenue is expected to continue."