[Click eStock] Lotte Tour Development Expected to See Earnings Growth on Rising Visitor Numbers... 'Buy'

Initiating Coverage with "Buy" Rating and Target Price of 23,000 Won
Earnings Growth Expected on Visitor Increase,
High-Roller Indicators Show Positive Trend
Investment Sentiment to Improve as Overhang Concerns Ease
Financial Cost Stabilization Anticipated

On August 25, NH Investment & Securities initiated coverage on Lotte Tour Development, citing expectations of earnings growth driven by an increase in visitor numbers. The firm assigned a "Buy" investment rating and set a target price of 23,000 won.

Lee Hwajeong, a researcher at NH Investment & Securities, stated, "We are initiating coverage with a Buy rating," adding, "Both earnings and investment sentiment have entered an improvement phase. Earnings growth is expected to be driven by an increase in visitors due to the easing of Korea-China relations, top-line growth from improved high-roller (VIP customer) indicators, and a reduction in financial costs through the generation of operating cash flow." She continued, "We are setting a target price of 23,000 won, which is based on applying a target price-to-earnings ratio (PER) of 28 times to the 2026 earnings per share (EPS), when the overhang (potential sell-off) concerns are expected to be resolved. The target PER of 28 times reflects the average PER of major Macau casinos with similar customer profiles to Lotte Tour Development during the period of strong top-line growth in 2016-2017."

The analysis highlights expectations for high-roller indicator growth. Lee explained, "The mass (general customer) portion of casino drop amount (the amount customers exchange for chips) at Lotte Tour Development is around 80%, so currently, growth in drop amount is in its early stage, driven mainly by an increase in mass visitor numbers, and the rise in per capita spending is also limited. However, recently, there has been a notable increase in table drop amount, a decline in hold rate (net revenue/drop amount), and an expansion in comped (complimentary or discounted) rooms, all indicating a rising influx of high-roller visitors. If the share of high-rollers expands going forward, the leverage effect from higher per capita spending will also become more apparent."

Improvement in investment sentiment is expected as the overhang from convertible bonds (CBs) issued during the COVID-19 period is set to be fully resolved within this year. Lee said, "The sixth CB remains unconverted even after the conversion date (August 21), and there may be attempts to reduce interest expenses through refinancing within the year. The remaining convertible volume of 5.97 million shares (7.5%) is expected to be fully converted by November."

The company is expected to enter a phase of financial cost stabilization. Lee noted, "Given the trend of expanding operating cash flow due to improved business conditions, the likelihood of additional overhang from new financing is extremely low."