[Into the Stocks] Is the 'Paradise' of Stock Prices Coming... Institutions and Foreigners Slowly Shopping

[Asia Economy Reporter Lee Seon-ae] The stock price of Paradise, considered a leading casino stock in South Korea, is gradually showing signs of recovery. Paradise's stock price had been wavering due to operating losses caused by the direct impact of the COVID-19 pandemic. However, recently, it has been mentioned as a key beneficiary of the reopening and the resumption of air routes, causing its stock price to start moving upward. Securities firms predict that the stock has hit the "bottom" and now only needs to enter a trend of sustained growth.

According to the Korea Exchange on the 2nd, Paradise's stock price increased by 8.97% from the 25th to the 31st of last month.

Recently, net buying by foreigners and institutions has also acted as a driving force behind the stock price rebound. Foreigners and institutions have continued net purchases in the casino sector, including Paradise. This is analyzed to be due to expectations of a recovery in the casino industry's performance. Foreigners have shown net buying activity in Paradise since the 18th of last month, with total purchases amounting to 4.1 billion KRW during this period. Institutions bought shares worth 12.8 billion KRW in the same period.

Securities firms foresee that Paradise's stock price has now begun to take flight. They believe that as the second half of the year progresses, clearer performance improvements will enhance the attractiveness of the business environment.

Paradise recorded an operating loss of 25.5 billion KRW in the first quarter (continuing deficit). This was due to unavoidable operational disruptions caused by ongoing international travel restrictions, with operations mainly focused on Korean residents abroad. There was also a one-time expense of 13 billion KRW related to voluntary retirement at the head office gaming facilities. However, international travel restrictions have recently been easing. Paradise has dispatched all Japanese marketers locally to actively resume VIP customer recruitment activities in Japan. If visa-free entry between Korea and Japan becomes possible after July, improved accessibility to Japanese VIPs could increase customer inflow, so they are proactively responding. Lee Hwa-jung, a researcher at NH Investment & Securities, said, "Differentiated marketing using local partners (Sega Sammy) is expected," adding, "From the second half of the year, meaningful sales recovery combined with a lighter cost structure is expected to lead to a steep performance recovery."

Kiwoom Securities also analyzed that Paradise's operating loss in the second quarter will shrink, raising expectations for recovery from the second half. Lee Nam-soo, a researcher at Kiwoom Securities, explained, "With the lifting of social distancing in the second quarter, performance is expected to improve compared to the first quarter, forecasting an operating loss of 17.9 billion KRW," adding, "Growth in the non-casino segment is acting as a key factor in defending against sales decline, and cost-efficiency efforts initiated last year are leading to a reduction in the deficit." He continued, "Local VIP casino sales centered on the Korean resident market are also continuing," emphasizing, "Due to the expansion of domestic leisure demand, growth in the hotel sector is prominent, and flexible performance improvement will be supported after the re-entry of foreign VIPs."

Expectations for a full recovery are set for the second half. He stated, "We expect effects from the summer vacation season in the third quarter and the resumption of foreign arrivals," but added, "However, re-entry from China and Japan is expected to be limited after the fourth quarter, so full-scale growth is anticipated to begin from the end of the year."

Meanwhile, the securities industry maintains a 'Positive' investment opinion on the casino sector. Lee Hwa-jung of NH Investment & Securities said, "The moment long-awaited casino customer accessibility recovery becomes visible," adding, "Although hurdles such as China's continued zero-COVID policy clearly exist, the sector has entered a phase where a full-scale performance recovery can be confirmed." While travel stocks have been mentioned as representatives of reopening, the faster pace of performance recovery in the casino industry compared to the travel industry is improving investor sentiment.

Ji In-hae, senior researcher at Shinhan Financial Investment, said, "Casino demand, due to the nature of the industry, returns immediately without lead time, and betting amounts per person are expected to rise due to revenge spending," adding, "Since it is far from inflation and supply issues, expectations for reopening benefits are growing."