[Click eStock] Lotte Tour Development, Hotel Leads and Casino Supports

[Asia Economy Reporter Lee Seon-ae] IBK Investment & Securities announced on the 31st that it has initiated coverage on Lotte Tour Development with a buy rating and a target price of 21,000 KRW.

Researcher Lee Hwan-wook of IBK Investment & Securities explained, "The target price was calculated by applying a target multiple of 16 times to the EBITDA for next year, when the business environment is expected to normalize," adding, "The applied multiple reflects a 15% discount from the 2019 average EV/EBITDA of 18.7 times of major competitors."

Established in 1971, Lotte Tour Development has primarily engaged in tourism development, domestic and international travel agency services, and airline ticket sales agency. However, it was reborn as a complex resort operator with the opening of Jeju Dream Tower in December 2020. Jeju Dream Tower is the tallest landmark facility in Jeju Island (38 floors above ground, 6 floors underground, the largest in Korea by total floor area), located in Nohyeong-dong, Jeju City, the busiest district. It is an urban complex resort consisting of two towers housing a hotel (Grand Hyatt), a casino, and other ancillary facilities (10 MICE venues, 14 F&B outlets, swimming pool, spa, sauna, etc.).

The hotel is expected to continue expanding its OCC (Q_room occupancy rate) this year due to the lifting of social distancing measures and increased demand for staycations. The proportion of home shopping channels within the hotel sales channels is continuously decreasing, leading to an increase in ADR (P_average daily rate), and combined with price hikes in the F&B sector, a clear improvement in performance is anticipated.

The casino holds geographical advantages (high accessibility & visa-free entry), and significant demand in the VIP market is expected in the future. Since the implementation of China's anti-corruption law in 2014, demand in Macau's VIP market has expanded to neighboring countries (Philippines, Malaysia, Cambodia, etc.). Jeju Dream Tower, newly renovated as a Macau-style complex resort (optimized for VIP flow and membership system), is judged to have higher customer attraction power compared to competitors.

The annual expected sales for this year are projected to increase by 166.6% year-on-year to 285.4 billion KRW, with an operating loss of 14.7 billion KRW (reduced deficit). Researcher Lee said, "With the gradual recovery of visitors to Jeju Island, hotel OCC is expected to reach 70%, and the reduction in the proportion of home shopping channels will enhance the operating leverage effect due to ADR increases and F&B price hikes." He added, "Furthermore, casino performance is expected to continue improving with the recovery of overseas arrivals in the second half, making an operating profit turnaround possible from the third quarter onward."