[Click eStock] "Kangwon Land, Expected to Benefit from Daily Recovery Starting 2Q"

[Asia Economy Reporter Lee Jung-yoon] Kiwoom Securities maintained its buy rating and target price of 33,000 KRW on Kangwon Land on the 19th, stating that although operating hours were shortened in the first quarter of this year due to the domestic Omicron variant outbreak, benefits are expected from the second quarter onward in line with the guidelines for returning to normal life.

Kangwon Land's sales in the first quarter of this year are estimated to be 227.9 billion KRW, a 133.9% increase compared to the previous year, and operating profit is expected to turn positive at 11.8 billion KRW, though below consensus estimates. Sales are expected to improve in both casino and non-casino sectors. Casino sector sales are projected to reach 194.9 billion KRW, up 128.1% year-on-year, while non-casino sales are expected to increase by 174.7% to 33.0 billion KRW.

Researcher Lee Nam-soo of Kiwoom Securities explained, "With sales improvement, variable costs related to casinos such as mine closure funds, tourism promotion funds, and individual consumption tax are expected to increase, resulting in a 44.1% rise in total cost of sales compared to the same period last year." He added, "In the first quarter of last year, Kangwon Land experienced 45 days of operating losses due to closure from December 8, 2020, to February 14, 2021, but this year’s first quarter saw normal operations throughout all business days." He continued, "However, due to the reapplication of social distancing measures starting December 18 last year, operating hours were shortened, so sufficient effects are unlikely."

It is analyzed that the second quarter of this year will be influenced by increased outdoor activities and domestic travel following the lifting of social distancing. This is expected to break free from growth restrictions caused by shortened operating hours implemented since December last year. Joint promotions for casino and non-casino sectors targeting the May holidays and the July-August vacation season are expected to be active, leading to a virtuous cycle of customers within the resort. However, despite the lifting of social distancing, restrictions such as a simultaneous casino occupancy limit of 3,000 people, ARS lottery for casino admission, and prohibition of side betting remain in effect, so growth is expected to be more prominent in the second half of the year than in the second quarter.

Researcher Lee said, "This year, we anticipate a performance pattern of lower results in the first half and higher in the second half due to the stepwise application of returning to normal life," adding, "The expansion of the recovery phase is expected to increase domestic travel, improving the non-casino sector and consequently boosting casino customer attraction."