Kangwon Land Anticipates Return to Profitability After Overcoming COVID-19 Challenges

As the COVID-19 pandemic continues for an extended period, expectations for 'With Corona (gradual return to daily life)' are growing. President Moon Jae-in said, "By the end of next month, the vaccination completion rate will exceed 70%, and at that time, we need to consider 'With Corona,'" adding, "Experts have already started discussing plans on how to restore daily life."

Not only domestically but also in some countries, movement restrictions are being eased, and overseas travel is expected to resume soon. As consumer sentiment, which was suppressed due to COVID-19, revives, demand for fashion and cosmetics is expected to increase. Additionally, if Chinese tourists start visiting Korea again, casino performance is also expected to normalize. Asia Economy examines the current status of listed companies expected to recover their performance with the transition to With Corona, focusing on Paradise and Kangwon Land, and assesses their growth potential.

[Asia Economy Reporter Yoo Hyun-seok] Despite the ongoing COVID-19 situation, Kangwon Land turned a profit in the second quarter. This was due to an increase in simultaneous occupancy following the restructuring of social distancing levels. It is expected that as we enter the With Corona era, the number of occupants will increase further, accelerating performance improvement.

Kangwon Land was established in 1998 to promote the economy of mining areas. It operates casinos, hotels, golf courses, condos, ski resorts, and Water World. In the case of casinos, it is the only one in Korea where domestic residents can enter. Based on the Special Act on Support for Mining Area Development, it holds a monopoly on domestic casinos until 2045. As of last year, casinos accounted for 84.5% of total sales, followed by hotels (7.7%), condos (3.4%), ski resorts (2.5%), and golf courses (1.6%).

Kangwon Land suffered significant damage due to COVID-19. Sales and operating profit, which were KRW 1.4381 trillion and KRW 430.7 billion in 2018, increased to KRW 1.52 trillion and KRW 501.2 billion in 2019. However, last year's sales dropped by 68.52% year-on-year to KRW 478.6 billion, and operating profit turned to a loss, recording KRW 431.6 billion in losses. COVID-19 and social distancing measures had an impact. In particular, the general and VIP gaming halls were closed for a period due to confirmed cases and COVID-19 prevention measures, resulting in severe performance deterioration.

Performance slumped through the first quarter of this year. First-quarter sales were KRW 97.4 billion, down 58.72%. Operating loss decreased from KRW 186.8 billion to KRW 59.6 billion. The number of operating days in the first quarter was only 45 days, half of the total operating days, reflecting the impact of closures.

However, the second quarter recorded better results than the first. Consolidated sales were KRW 203.6 billion, a 487.9% increase compared to the same period last year. Operating profit turned positive at KRW 2.7 billion. Specifically, the casino sector recorded sales of KRW 183.9 billion, up 550.4% year-on-year, and the non-casino sector also increased by 210.4% to KRW 19.8 billion.

This was due to an increase in visitors following the restructuring of social distancing. From June 15, social distancing in Gangwon Province, where Kangwon Land is located, was eased. As a result, second-quarter admissions reached 199,394, a 128.6% increase from the previous quarter.

Lee Seon-hwa, a researcher at KB Securities, explained, "At the end of the second quarter, social distancing was eased from the previous level 1.5 to the newly established level 1 for 16 days, showing a rapid recovery in casino sales," adding, "The second-quarter operating profit turned positive, recording a surprise performance."

Expectations for performance improvement in the second half of the year are also high. Although social distancing was strengthened again from July, the restructuring increased the simultaneous occupancy limit. According to KB Securities, the simultaneous occupancy at Kangwon Land was 1,200 from February 15 to June 14, and 2,300 from June 15 to July 14.

From July 15 to the present, the capacity is 1,800. However, the daily reservation number of visitors is already reported to reach 8,000, which is the average daily visitor level before COVID-19. This indicates significant potential for performance improvement.

According to FnGuide, securities firms forecast Kangwon Land's sales this year to be KRW 856.9 billion, a 79.0% increase from the previous year. Operating loss is expected to decrease significantly to KRW 2.2 billion. Some securities firms expect operating profit to turn positive.

Additionally, the sales forecast for the third quarter is KRW 254 billion, a 231.61% increase year-on-year. Operating profit for the same period is expected to turn positive at KRW 30.6 billion. This is because, along with improved casino operations, non-casino sectors such as hotels and golf courses may also show strong seasonal performance.

As the number of people vaccinated against COVID-19 increases and the country moves into the With Corona phase, the acceleration of performance is expected to be faster. The government recently announced that it would consider phased easing of quarantine measures after 70% of the population completes vaccination. Currently, the first-dose vaccination rate exceeds 70%, and the completion rate exceeds 40%.

Lee Hwa-jung, a researcher at NH Investment & Securities, said, "Whether business normalization occurs will be the key to performance recovery," adding, "With the domestic vaccination rate rising and discussions on the With Corona transition underway in November, the remaining second half of the year is expected to see more comfortable performance."