[Click eStock] Kangwon Land Endures Despite Operating Environment Contraction "Target Price Downgraded"

[Asia Economy Reporter Lee Seon-ae] Kiwoom Securities announced on the 17th that it maintains a buy rating on Kangwon Land but lowers the target price to 33,000 KRW. This is because the improvement in Kangwon Land's Q1 and first half 2022 earnings, assuming With Corona phases 2 and 3, is expected to slow down due to the reintroduction of social distancing measures.

Namsoo Lee, a researcher at Kiwoom Securities, explained, "We are lowering the expected 2022 earnings per share (EPS) by 15% and applying a price-earnings ratio (PER) of 19.3 times to lower the target price." However, he added, "Considering the most rapid turnaround in earnings improvement momentum, steady visitor traffic, and flexible earnings recovery due to restored operating hours, we maintain the buy rating."

It is forecasted that Q4 sales will be 253.4 billion KRW (yoy +93.0%) and operating loss will be 16.5 billion KRW (loss), falling short of consensus. Casino sales are expected to be 225.4 billion KRW (yoy +92.3%) and non-casino sales 28.1 billion KRW (yoy +98.4%), with improvements across all sectors. However, due to concentrated year-end expenses, increases in cost of sales and selling and administrative expenses are expected to result in an operating loss.

The casino sector anticipated benefits from increased traffic following the implementation of With Corona in November, but due to strengthened quarantine guidelines, it showed a drop amount decrease of -7.8% and a visitor increase of +15.3% compared to the previous quarter. The non-casino sector also appears to have not fully realized the effects of With Corona and ski resort openings due to weakened travel sentiment caused by the rise in confirmed cases.

The operating hours changed to 10 a.m. to 10 p.m., which is the most stringent restriction aside from closures. Entry restrictions based on ARS lottery are already in place, and since the implementation of With Corona, verification of vaccination completion and application of quarantine passes are simultaneously enforced.

During Q3, when social distancing measures were applied, the simultaneous occupancy was 1,800 people, and the average daily visitors were in the high 2,000s. After the application of With Corona in November, the simultaneous occupancy increased to 3,000 people, and the average daily visitors are expected to reach the mid-3,000s. However, with the reintroduction of social distancing on December 18, operating hours were shortened, leading to a decrease in stay time and a contraction in drop amount per person. Nevertheless, despite the impact of Omicron, the visitor level maintained in the mid-3,000s is considered very robust, and flexible earnings recovery due to restored operating hours is anticipated.