[Click eStock] "Lotte Tour Development, Q4 Earnings Improvement Expected with 'With Corona'"

Kiwoom Securities Report

[Asia Economy Reporter Minji Lee] Kiwoom Securities maintained its buy rating and target price of 29,000 KRW for Lotte Tour Development on the 14th. Although the improvement in third-quarter earnings is not expected to be significant due to the prolonged social distancing measures, the company is expected to benefit from the implementation of the 'With Corona' policy.

Lotte Tour Development's third-quarter sales are projected to reach 46 billion KRW, a 3665% increase compared to the same period last year, but it is estimated to have recorded an operating loss of 14.2 billion KRW due to continued operating deficits. The Jeju tourism market, which aimed to capitalize on the peak season during the Chuseok holiday in September, appears to have not achieved sufficient results due to the implementation of level 4 social distancing.

However, it is observed that there was no significant impact leading to increased losses, considering that operations were favorable until mid-August before the application of level 4 distancing and that Jeju is a region with many family trips. Namsoo Lee, a researcher at Kiwoom Securities, explained, "The hotel segment is expected to record improved performance compared to the second quarter, with a 40% room occupancy rate and an average room rate of 300,000 KRW."

The casino is predicted to support stable performance with VIP customers generating around 200 billion KRW in drop per quarter and mass customers at the 50 billion KRW level until the arrival of foreign customers. The improvement in hotel performance combined with the casino effect is analyzed to initiate a turnaround in earnings.

The changes in the tourism industry following the implementation of the With Corona policy in November are expected to have a stepwise effect on the inbound market, as the full-scale re-entry of foreigners will not occur. The company has the advantage of a diverse customer base compared to competitors, including domestic tourists, local casino customers, corporate MICE clients, and foreign casino customers.

Researcher Namsoo Lee stated, "The implementation of the With Corona policy could lead to the resumption of corporate MICE clients, enabling the additional operation of hotel rooms that have not yet opened. Synergies from the Hyatt Group's network are also possible, making the effects of the travel bubble with Singapore in mid-November worth anticipating."

Overseas travel is expected to resume in the order of limited package tours, active individual travel, general individual travel, and general package tours. For Lotte Tour Development, the inbound business segments of casino VIP and MICE demand fall into the stages of limited package tours and active individual travel, so they are expected to benefit from the With Corona effect. Researcher Namsoo Lee added, "Accordingly, considering the full operation of all hotel rooms and the recovery of weekday MICE demand from mid-fourth quarter, an operating profit turnaround is expected in the first quarter."