[Click eStock] "Paradise, Short-term Competition Intensifies... Target Price Down"

Target Price Revised Downward by 19.0% Compared to Previous Estimate

On the 24th, KB Securities downgraded the target price for Paradise from 21,000 KRW to 17,000 KRW, citing intensified competition and other factors expected to impact earnings. The investment rating was maintained at 'Buy.'

Lee Seonhwa, a researcher at KB Securities, explained, "The Inspire Casino, which opened last March, has been conducting aggressive marketing, intensifying competition among casinos on Yeongjongdo Island in Incheon. There are concerns about margin deterioration following investments in new hotel businesses in Jangchung-dong and the opening of new hotels. As a result, operating profit estimates for 2024 and 2025 have been lowered by 20.5% and 18.8%, respectively, which is the main reason for the target price downgrade." She added, "However, the current stock price is trading at a forward price-to-book ratio (PBR) of 0.6 times for 2024, so we believe these risks are already reflected in the stock price, and thus we maintain our investment rating."

Paradise's third-quarter earnings this year are expected to meet market forecasts. The researcher stated, "On a consolidated basis for the third quarter, sales are expected to decrease by 6.1% year-on-year to 268.2 billion KRW, and operating profit is expected to decline by 39.3% to 34.7 billion KRW, in line with the consensus operating profit estimate of 37.3 billion KRW (average of securities firms' forecasts). Although the combined drop amount (the amount casino customers exchanged for chips) increased by 6.3% in the third quarter, the hold rate (net sales/drop amount) fell by 1.8 percentage points year-on-year to 10.2%, resulting in an 8.6% decrease in casino net sales. Marketing expenses increased due to performance bonuses and intensified competition, leading to an expected 7.1 percentage point decline in operating profit margin," she analyzed.

Japan's VIP drop amount in the third quarter recovered by 127.8% compared to the third quarter of 2019, before COVID-19, maintaining strong growth. However, due to the high base, further growth is challenging. Therefore, the recovery of Chinese VIPs is crucial, but a short-term recovery is expected to be difficult. The researcher said, "Although the casino industry is expected to improve due to China's large-scale economic stimulus measures, considering the recovery of overseas travel demand and visa issuance in China, as well as intensified competition among casinos on Yeongjongdo Island, a short-term recovery seems unlikely. However, in the mid to long term, the market size is expected to grow due to the clustering of casinos on Yeongjongdo Island. In particular, if Chinese VIP traffic significantly recovers to past levels, the expansion effect of Walkerhill will be further highlighted."