GKL: Casino Stocks See Sunshine but Still Remain in the Shadows

Concerns Over Relocation of Seoul's Largest Branch Amid Millennium Hilton Seoul Hotel Sale
Restructuring Difficult, Fixed Cost Burden Also Rises

[Asia Economy Reporter Minwoo Lee] The expansion of COVID-19 vaccinations is expected to bring a positive breeze to the casino industry. However, Grand Korea Leisure (GKL) seems to be overshadowed instead. With the sale of major Seoul business locations increasing operational uncertainties and the nature of a public enterprise making cost reductions through restructuring difficult, concerns are rising.

According to the Korea Exchange on the 11th, GKL's stock price fell 6.1% from February 13 last year, before the global stock market plunged due to the full-scale spread of COVID-19, until the day before yesterday. During the same period, the KOSPI rose 44.4%. Paradise, Kangwon Land, and others showed similar stock price trends, but future prospects differ. KB Securities gave a 'Buy' rating for other casino stocks such as Paradise, Kangwon Land, and Lotte Tour Development, but only a 'Neutral (HOLD)' rating for GKL. Although the expansion of COVID-19 vaccinations and the resumption of overseas travel are expected to benefit the casino industry overall, GKL is judged to have been left out of this favorable trend.

The biggest negative factor cited is the increased uncertainty in sales at major business locations. With the Millennium Hilton Seoul Hotel sold to Aegis Asset Management, the Seven Luck Casino Seoul Gangbuk Hilton branch located in this hotel is now facing the need to close its operations soon. According to the Ministry of Culture, Sports and Tourism and the Korea Tourism Organization, the Seven Luck Casino Hilton branch has the smallest operating area among the three foreigner-only casinos in Seoul but has the highest number of visitors. As of 2019, it recorded 900,000 visitors, surpassing the Seven Luck Casino Gangnam COEX branch (540,000 visitors) and Paradise Casino Walkerhill branch (510,000 visitors). KB Securities researcher Sunhwa Lee analyzed, "The possibility of downsizing business locations in 2022, when contact-related stocks' performance is expected to recover fully, is a significant risk factor."

Another concern is the heavy burden of fixed costs. Due to the nature of a public enterprise, workforce restructuring is difficult. Because of the corporation's status, it is also challenging to receive employment retention subsidies, making cost reduction difficult. The researcher expressed concern, stating, "While major foreigner-only casino competitors have succeeded in cost efficiency through workforce restructuring, GKL's labor cost ratio to sales increased from the pre-COVID 30% range to 705% in the first quarter of this year amid poor business conditions caused by COVID-19."