[Click eStock] "Paradise, Profit Turnaround After 6 Quarters... Overseas Arrivals Could Rapidly Boost Earnings"

[Asia Economy Reporter Minwoo Lee] Paradise has emerged from a deficit after six consecutive quarters. Having succeeded in turning a profit solely through cost reduction and recovery in demand from the Korean diaspora market, there are expectations that profits will increase sharply if the number of inbound travelers rises in the future.

On the 10th, Hyundai Motor Securities analyzed Paradise in this way. Paradise recorded consolidated sales of 121.8 billion KRW and an operating profit of 4.8 billion KRW in the third quarter of this year. Compared to the same period last year, sales increased by 34.5%, and operating losses turned into profits. In particular, operating profit turned positive for the first time in six quarters.

Regarding sales, the hotel and integrated resort sectors achieved favorable results, increasing by 18% and 78% respectively compared to the third quarter of last year. Casino sales also rose by 12.1% during the same period, reaching 45 billion KRW. This marked a successful turnaround after six quarters. Total casino sales, including Paradise City, amounted to 76.1 billion KRW, up 37.9% from the same period last year. This set a new record for the highest quarterly sales since the first quarter of last year. The drop amount (the amount casino customers exchanged for chips) also increased by 11.1% to 429.5 billion KRW compared to the third quarter of last year. It was explained that the increase was mainly due to the Korean diaspora market’s other VIP drop amount rising by 24.3% to 307.7 billion KRW. The hold rate (net sales/drop amount) also improved by 3.6 percentage points year-on-year and 8.7 percentage points quarter-on-quarter to 16.5%.

Despite the surge in sales, Paradise succeeded in turning a profit by reducing costs. Selling and administrative expenses, which exceeded 20 billion KRW before COVID-19, have been reduced to around 13 to 15 billion KRW currently. Additionally, the recovery of the other VIP drop amount was positive. Hyundai Motor Securities researcher Hyunyong Kim said, "Since the current profit and cost structure has already achieved a turnaround, if the number of inbound travelers begins to increase in earnest, the speed of profit improvement will greatly surpass competitors."

However, Hyundai Motor Securities maintained its investment opinion of 'Neutral (HOLD)' and target stock price of 16,500 KRW for Paradise. The closing price on the previous day was 17,050 KRW. This was because the recovery of VIP drop amounts from China and Japan remains distant, and the drop amount has stagnated at about 35% of the usual level. Researcher Kim stated, "At the current sales level, even if the third quarter’s profit turnaround trend is maintained, the valuation burden will increase, so the potential for stock price growth is not large," adding, "Only a signal of an increase in inbound travelers can be the trigger for an upgrade in the investment opinion."