[Click e-Stock] "GKL Expected to Improve Earnings on Recovery of Chinese Tourists"

Target Price Raised to 19,000 Won

On June 23, Hanwha Investment & Securities maintained its "Buy" rating on GKL, raising its target price to 19,000 won, citing expectations for a robust earnings improvement driven by the recovery of Chinese tourists.

Park Suyeong, an analyst at Hanwha Investment & Securities, stated, "As of April, the number of foreign tourists visiting Korea reached approximately 1.71 million, marking an all-time high. Among them, the number of Chinese arrivals was 440,000." She explained, "Although these figures have not yet returned to pre-pandemic or pre-THAAD retaliation levels, a steady recovery trend is evident."

Park emphasized, "The increase in foreign tourist arrivals is leading to higher occupancy rates (OCC) and average daily rates (ADR) at major hotels in Seoul. In discussions regarding improved profitability indicators for hotels in Seoul driven by the rise in foreign tourists, Yongsan Dragon City is consistently mentioned." The GKL Yongsan branch, which relocated from the former Hilton location, is situated within Dragon City.

As of last month, the number of Chinese visitors to the Dragon City branch totaled 3,572. Of these, 305 were VIPs and 3,267 were PR Mass (premium regular customers). Park noted, "While the pace of recovery appears slow when considering the number of visitors alone, the recovery in performance is more pronounced when looking at drop amounts." She assessed, "In May, the drop amount from Chinese customers at Dragon City was approximately 29.5 billion won, recovering to 89% of the level seen in the same month of 2019. Notably, the PR Mass drop amount was 18 billion won, which is actually a 1% increase compared to the same period in 2019."

Park projected that whether visa-free entry will be fully allowed for Chinese group tourists in the second half of the year will be a key variable for performance improvement. She explained, "As the proportion of PR Mass customers increases, profitability indicators are also expected to improve further. Until now, foreign VIP customers residing in Seoul have been the main clientele, and it is highly likely that they have contributed to GKL's weak hold rate (casino profitability)."

Regarding the background of the target price increase, Park stated, "We changed the base year for target price calculation to 2026 and set the target price-to-earnings ratio (PER) at 17 times." She explained, "This reflects a 15% premium applied to the 2018-2019 average multiple, taking into account the indirect benefits from continued casino regulations in Macau."