[Click eStock] "GKL, Costs Steady but Sales Plummet"

Deficit Inevitable Until Recovery of Foreign Tourists

[Asia Economy Reporter Minwoo Lee] Grand Korea Leisure (GKL) has seen its performance deteriorate further in the third quarter of this year. Since labor costs, which are fixed expenses, remain at 90% of pre-COVID-19 levels, large-scale deficits are expected to be unavoidable until the number of incoming visitors recovers.

On the 11th, Hyundai Motor Securities maintained its investment rating of 'Neutral (HOLD)' and a target price of 14,000 KRW for GKL, citing these reasons. The closing price the previous day was 15,850 KRW.

GKL recorded consolidated sales of 25.3 billion KRW and an operating loss of 31 billion KRW in the third quarter of this year. Sales decreased by 27.2% compared to the third quarter of last year, and losses continued. Compared to the previous quarter, sales declined and the scale of losses increased, indicating a worsening performance. The drop amount (the amount casino customers exchanged for chips) was 173.4 billion KRW, down 33.2% year-on-year and 19.7% quarter-on-quarter, showing poor performance compared to competitors. The hold rate (net sales/drop amount) also fell by 1.2 percentage points from the previous quarter to 12.3%.

From a cost structure perspective, labor costs, which are fixed expenses, remain at 90% of pre-COVID-19 levels, so large-scale deficits are expected to be unavoidable until the number of incoming visitors recovers to normal levels. In fact, the cumulative number of incoming visitors from January to September this year was 690,000, a 95% plunge compared to the same period last year. Although the monthly average recovered to around 90,000 to 100,000 in August and September, this is considered far too low for casino VIP customers to visit at normal levels. Hyundai Motor Securities analyst Hyunyong Kim said, "Variable costs excluding labor costs have plummeted in line with the sales decline, so increasing sales is the only solution to reduce losses," adding, "It will be difficult to avoid quarterly operating losses until the first half of next year."

Dividends are also expected to be difficult for the time being. Although GKL has consistently paid dividends of 3-4% per share, it was unable to pay dividends last year due to the extreme operating environment caused by COVID-19. This trend is expected to continue this year as well. Analyst Kim explained, "There is almost no foreign inflow, and the abnormal market structure depends on the Korean diaspora to maintain even minimal sales," adding, "Ultimately, performance and investment sentiment improvements will be impossible until foreign inflow resumes."