[Click eStock] "Paradise Faces Short-Term Lack of Performance and Momentum... Target Price Lowered"

Upward Revision Planned Upon Confirmation of Next Year's Earnings

On November 11, Hana Securities lowered its target price for Paradise by 10% to 27,000 won, stating, "Third-quarter results fell short of expectations, and the soft opening of the Incheon Hyatt West Tower has been delayed to March next year, resulting in a lack of performance and momentum in the short term."

However, the firm added, "Once we confirm steep profit growth through the hotel acquisition and soft opening, we plan to revise up our earnings and valuation forecasts again," presenting Paradise as a second-preferred stock within the leisure sector.

Paradise's third-quarter results missed market expectations. Third-quarter revenue was 288.1 billion won (up 8% year-on-year), and operating profit was 39.5 billion won (up 9%), falling short of the consensus estimate of 51.5 billion won. The drop amount reached 1.8 trillion won (up 2%), and the hold rate was 11.3% (an increase of 1.2 percentage points). Lee Gihun, a research analyst at Hana Securities, commented, "September recorded the lowest monthly revenue of the year at 63 billion won, leading to deleveraging," and analyzed, "As a result, Sega Sammy's operating profit was sluggish at 22.2 billion won (down 18%), which had an impact." In addition, about 2.6 billion won in one-off advertising and customer promotion expenses were reflected.

The hotel segment continues to boom. The occupancy rates (OCC) for City and Busan reached record highs since the pandemic at 85.8% and 89.2%, respectively. Especially, City's average daily rate (ADR) was 478,000 won (an increase of 40,000 won), marking the highest level since the pandemic.

Lee pointed out that the "painful aspect" for Paradise in these results is that, starting from the third quarter, Lotte Tour Development's (Lotte) operating profit surpassed that of Paradise. He explained that this is because Lotte provides about 50% of its 1,600 rooms as complimentary. He diagnosed, "The per capita drop amount at Lotte and City differs by as much as five to six times, so with City's limited hotel rooms, it inevitably has to focus on VIPs rather than the mass market, which means short-term growth potential is somewhat limited."

The acquisition of the Incheon Hyatt West Hotel is expected to provide Paradise with significant momentum, as it will expand hotel rooms by nearly 70% and, along with a strong geographic advantage with Japan, will allow the company to address the challenge of attracting mass customers at once. Lee added, "It is unfortunate that the scheduled acquisition date has been pushed from October 31 to November 19, delaying the soft opening from January to around March."

Lee also predicted that the company's fourth-quarter results would see a temporary slowdown due to seasonal cost factors. However, he emphasized, "The current growth momentum seen at Lotte is expected to be visible at Paradise from the second quarter of next year, and once the results are confirmed, we will revise up our 2026 outlook accordingly."