[Click e-Stock] "Lotte Tour Development Could Reach 3 Trillion Won Market Cap...Currently Undervalued"

On November 18, Hana Securities projected that Lotte Tour Development could surpass a market capitalization of 3 trillion won in the mid- to long-term, citing a structural earnings turnaround and its current undervaluation.

Lee Kihun, a research analyst at Hana Securities, stated, "Even with a conservative earnings outlook for the next two years, the projected price-to-earnings ratio (PER) for 2027 remains at a low level of just 14 times, indicating undervaluation." He added, "There is the highest potential for consensus earnings estimates to be revised upward." He further explained, "In the second half of this year, a large volume of convertible bonds was either redeemed or converted, absorbing the overhang. With the stock price having already undergone a period of adjustment, we expect a strong upward trend to continue into next year," naming Lotte Tour Development as his top pick in the leisure sector.

The pace of earnings improvement is far outpacing market expectations. Following the improvement in Korea-China relations, the proportion of hotel room comps provided to casino customers has surged sharply-"from 31% in the first quarter, to 42% in the second quarter, and to 49% in the third quarter out of 1,600 available rooms"-leading to record highs in visitor numbers, drop amounts, and revenues. Thanks to a high contribution margin structure, operating leverage has been maximized, and the company has delivered earnings surprises for three consecutive quarters.

In fact, operating profit reached 53 billion won in the third quarter and is expected to exceed 40 billion won in the fourth quarter. Lee pointed out, "The consensus operating profit forecast for next year is around 185 billion won, which is less than twice the level of the second half of this year," highlighting that market estimates remain conservative. He also noted, "If you recall the steep upward cycle of Paradise ten years ago, there is a high probability that estimates will continue to be revised upward."

Mid- to long-term growth potential is also noteworthy. Lee projected that if the comp ratio expands to 70%, "annual casino revenue could rise to around 700 billion won (with 2027 estimates at 620 billion won), and considering operating leverage, operating profit could sufficiently reach around 250 billion won per year."

The pace of financial structure improvement is also expected to be rapid. He said, "Even assuming annual operating profit of just 200 billion won, cash flow on an EBITDA basis would approach 300 billion won," and "if this cash is used to repay long-term borrowings, barring any variables, full repayment could be achieved by 2028-2029." Starting from the second half of next year, early repayment without fees or refinancing will also be possible, leading to a rapid decrease in financial costs. He further analyzed, "With accumulated deficits exceeding 1 trillion won, corporate tax will be limited for the time being," and after debt burdens are resolved, there is also the potential for high dividends.

He emphasized that, assuming annual operating profit of 250 billion won and net profit of 200 billion won in the mid- to long-term, "applying a target PER of just 15 times would make a market capitalization of over 3 trillion won achievable."