[Click eStock] "GKL, Losses Inevitable Until Foreign VIP Visits Resume"

[Asia Economy Reporter Eunmo Koo] Kiwoom Securities forecasted that losses at GKL are likely to continue until foreign VIP visits resume. Although local VIP sales have remained stable, considering the difficulty in flexibly managing fixed costs such as labor expenses, a performance rebound seems unlikely in the near term, indicating the need for a mid- to long-term approach.

GKL's sales in the third quarter of this year were 34.8 billion KRW, a 73.9% decrease compared to the same period last year, and operating losses turned to a deficit of 31 billion KRW. The impact of international travel restrictions due to COVID-19 has been reflected in poor performance since the second quarter. The total number of visitors in the third quarter was 98,900, down 75.7% year-on-year. VIP visits decreased by 60% to 15,600, but with restrictions on entry of Chinese and Japanese VIPs, who typically have relatively large drop amounts, the total drop amount fell by 72.7% compared to the same period last year. Although variable costs such as comps and promotional expenses decreased significantly, it was difficult to reduce fixed costs like salaries, resulting in only a 39.2% reduction in cost of sales and continued losses.

It is assessed that relying on local VIPs alone is challenging. The average monthly drop amount and casino net sales from May to October were 99.7 billion KRW and 11.7 billion KRW, respectively. On the 10th, Kiwoom Securities analyst Namsoo Lee explained in a report, “During this period, the average hold rate was 11.7%, and while efforts were made to defend performance as much as possible, there are aspects that are difficult to improve given the cost structure.” He added, “Last year, the average monthly drop amounts for Japanese and Chinese VIPs were 98.6 billion KRW and 88.7 billion KRW, respectively, and when considering premium mass players, the total scale exceeds that of local VIPs, making them essential for performance recovery.” He further predicted, “If casino operations continue to rely solely on local VIPs, the characteristic difficulty in flexibly managing labor costs will be reflected, resulting in sales and operating loss levels similar to those in the third quarter.”

The investment opinion was maintained as ‘Buy,’ but the target price was lowered to 17,500 KRW. Analyst Lee stated, “With the development of COVID-19 treatments and vaccines, industries such as casinos, airlines, and travel can overcome the barrier of global travel restrictions.” He added, “Although special situations like the recently discussed travel bubble can be assumed, they are not fundamental solutions, so expectations should be tempered.” However, he forecasted, “Assuming a travel bubble, the activation of inbound casino VIP arrivals is expected to recover earlier than outbound general travel demand, considering the inelastic nature of this travel demand.”