[This Week's Gwan.Jong] Paradise Rolls the Dice on KOSPI Transfer After 11 Years

Strong Q1 Performance Outlook
Concerns Eased by New Casino Opening
KOSPI Transfer Listing Expected to Positively Impact Stock Price

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Paradise, which is reattempting a transfer listing to the KOSPI after 11 years, is drawing attention as to whether it can enhance its corporate value and lay the foundation for stock price growth through the transfer listing. Paradise, which was hit hard by COVID-19, has completely recovered from the shock by recording its best-ever performance last year through steady recovery after the endemic phase of the pandemic. Despite the opening of a new foreigner-only casino, it continues to show solid growth, raising expectations for performance growth this year as well.

Concerns Eased by Performance Recovery

According to the Korea Exchange on the 17th, Paradise’s stock price rose 8.63% from the beginning of this year until the 15th. Although it hit a 52-week low of 12,210 KRW intraday on January 17, it has since recovered from the early-year slump.

This is interpreted as concerns over intensified competition due to the opening of a new foreigner-only casino, which had been a factor suppressing the stock price early in the year, being somewhat alleviated as favorable first-quarter performance is expected.

Previously, on the 3rd of last month, the Inspire Casino, a foreigner-only casino, opened. The Mohegan Inspire Entertainment Resort obtained the final license for foreigner-only casino operations in January. This was the first foreigner-only casino license granted in 19 years since 2005. With the opening of Inspire Casino, the largest foreigner-only casino in Korea, intensified competition among foreigner-only casinos was anticipated, leading securities firms to lower Paradise’s target stock price one after another at the beginning of the year. It was expected that intensified competition would negatively impact performance due to customer outflow, increased marketing expenses, and labor costs.

However, despite the opening of Inspire, Paradise showed solid growth in the first quarter, dispelling concerns about intensified competition. Paradise’s casino revenue in the first quarter of this year was 208.825 billion KRW, a 55.4% increase compared to the same period last year. The drop amount, which is the amount customers paid to purchase chips at tables, was 1.7296 trillion KRW in the first quarter, up 36.8% year-on-year. The drop amount recorded 568.9 billion KRW in January (up 19.4%), 565.4 billion KRW in February (up 56.0%), and 595.2 billion KRW in March (up 39.9%). This exceeded the average monthly amount of 555.7 billion KRW in the second half of last year. Accordingly, the first-quarter performance is also expected to be favorable. According to financial information provider FnGuide, the consensus for Paradise’s first-quarter performance (average securities firm forecast) is revenue of 268.1 billion KRW and operating profit of 38.7 billion KRW. This represents increases of 40% and 103.68%, respectively, compared to the same period last year. Ewha Jung, a researcher at NH Investment & Securities, explained, "The consolidated first-quarter revenue is expected to be 269.5 billion KRW and operating profit 40.4 billion KRW, exceeding consensus. In the casino segment, the growth in drop amount was remarkable, and combined with a favorable hold rate (net revenue/drop amount), sales grew significantly compared to the previous year, and there were no excessive expenses related to the opening of Inspire."

With a steady increase in inbound tourists to Korea, the performance outlook for foreigner-only casinos is bright. As of February this year, inbound tourists from China numbered 620,000, and from Japan 330,000, representing 74% and 78% of 2019 levels, respectively. During the same period, the number of VIP visitors to domestic foreigner-only casinos recovered to over 80% of 2019 levels. Researcher Ewha Jung predicted, "Due to the effects of Japan’s Golden Week (April 29?May 5) and China’s Labor Day holidays (May 1?5), inbound recovery is expected to continue for some time, so the gradual performance improvement of foreigner-only casinos is also likely to persist."

Although slow, the increase in Chinese VIPs is leading to forecasts that the casino segment could achieve its highest performance since the company’s founding this year. Namsoo Lee, a researcher at Kiwoom Securities, said, "While Japanese VIPs remain solid, although slower than expected, the increase in Chinese VIP customers is occurring, and with structural expansion of international flights still ahead, if the current trend continues, Paradise’s casino segment can expect its best-ever performance since its establishment."

Paradise recorded its best-ever performance last year. On a consolidated basis, it achieved revenue of 994.2 billion KRW and operating profit of 145.8 billion KRW, the highest sales since its founding in 1972. Operating profit increased by 181% compared to 2019, before the COVID-19 pandemic. Paradise suffered a direct hit from COVID-19, recording losses for two consecutive years in 2020 and 2021. It returned to profitability in 2022 and recorded its best-ever performance last year, fully recovering from the COVID-19 shock and entering a growth trajectory. Researcher Namsoo Lee evaluated, "The outlook for 2024 is also bright with simultaneous growth in revenue and operating profit. Although there are threats such as sluggishness in the hotel segment due to increased overseas travel and intensified competition with Inspire Resort, the top domestic casino performance is the key to growth."

However, since Inspire is still in its early stages, there is an opinion that its future impact needs to be continuously monitored. Researcher Namsoo Lee said, "The key to future performance direction is minimizing the initial negative impact of Inspire Resort. It is difficult to estimate the impact of Inspire Casino at this early stage, but the Golden Week in May and the peak season in July?August will be the first battlegrounds for intense customer acquisition competition." Researcher Junho Lee of Sangsangin Securities added, "Although there were concerns about customer outflow due to intensified competition, it was well defended. Of course, it is difficult to predict the future situation based on just two months of performance, but at least it has been confirmed that there is no bleeding. However, since the customer base overlaps with Inspire, continuous attention must be paid to defending Japanese VIP outflow."

Expectations for Corporate Value Reevaluation through KOSPI Transfer

The currently prepared transfer listing to the KOSPI is also expected to have a positive effect on future stock price trends. At the regular shareholders’ meeting on the 22nd of last month, Paradise passed the agenda for ‘Conditional Delisting from KOSDAQ and Approval of Transfer Listing to KOSPI’ as originally proposed, and on the 8th, it submitted a preliminary review application to the Korea Exchange’s Securities Market Division, officially starting the transfer listing process. This is Paradise’s first attempt to transfer to the KOSPI in 11 years. Paradise had previously attempted to move to the KOSPI in 2013 but voluntarily withdrew due to market concerns about transfer listings of high-quality KOSDAQ companies and the judgment that the transfer listing effect would not be significant.

However, as the only company in the same industry trading on KOSDAQ and not properly valued, it has resumed efforts to transfer listing.

The transfer listing is progressing faster than expected and is expected to be completed by July. Researcher Jinhae Ji of Shinhan Investment Corp. said, "The preliminary review approval for listing will be in June, followed by new listing and KOSDAQ delisting applications, and in July, the new listing application approval and commencement of trading will occur, so the transfer listing will proceed faster than expected. The purpose of the transfer listing is to expand the investor base through transfer to the KOSPI, where trading volume and supply-demand are smoother, thereby increasing interest from large institutional investors, pension funds, and foreign investors who can accompany the company long-term, and to build a sector with peer companies already trading on the KOSPI to induce corporate value reevaluation."

The market views Paradise’s transfer listing as positive for stock price and corporate value reevaluation. Researcher Junho Lee said, "From a stock price perspective, the transfer listing to KOSPI is very positive," adding, "It is expected to enhance shareholder value by activating supply and demand."

Researcher Namsoo Lee analyzed, "Once the transfer to the securities market is confirmed, valuation reevaluation with peer companies, improved supply and demand, and efforts to enhance shareholder value based on the most stable profit flow within the sector will act as positive factors."