[Click eStock] "Kangwon Land, Loss Reduction in Second Half and Normalization Expected Next Year"

[Asia Economy Reporter Song Hwajeong] Kiwoom Securities maintained its 'Buy' rating and target price of 38,000 KRW for Kangwon Land on the 7th, expecting the scale of operating losses to shrink in the second half of this year and normalization to be possible next year.

Kangwon Land is expected to record the lowest level of losses since the impact of COVID-19 in the second quarter of this year. Kiwoom Securities estimated Kangwon Land's second-quarter earnings at 195.7 billion KRW in sales, a 465.1% increase compared to the same period last year, and an operating loss of 2.1 billion KRW. The casino is expected to record sales of 180.6 billion KRW, which is about 54% of the 2019 quarterly average casino sales of 335.6 billion KRW. Namsoo Lee, a researcher at Kiwoom Securities, analyzed, "Compared to the average daily visitors of about 8,000 in 2019, the second quarter of this year saw about 2,000 visitors, showing remarkable sales efficiency per visitor," adding, "Cost of sales and selling and administrative expenses are expected to consider only the reopening of casino operations and non-casino operations such as hotels, indicating a very high possibility of loss recovery."

Social distancing remains a major variable. Since the 15th of last month, the simultaneous occupancy limit was raised from 1,200 to 2,300, leading to an increase in visitors and improvement in casino sales, raising expectations for third-quarter earnings improvement. The researcher said, "If the social distancing level is raised under the current circumstances, the reduced number of visitors corresponding to that level will be reflected, and the gradual increase in occupancy is a risk factor."

It is forecasted that performance will recover to normal levels next year. The researcher explained, "The operating situation in the second half is expected to be more favorable, compensating for the poor first quarter and resulting in an annual operating loss of 21.5 billion KRW this year," adding, "Next year, with a high possibility of daily life resuming, deferred demand for casino and non-casino operations will create synergy with the casino's 2-hour extended operating hours and the addition of 20 casino tables, leading to normal-level performance."