Korean financial group KB Securities has called on Grand Korea Leisure to invest in asset upgrades as a means of driving long-term growth and warding off the threat posed by the opening of MGM Osaka in Japan in 2030.
However, in a Wednesday note, KB Securities analyst Choi Yong-hyun noted that there were few signs that such investment is an immediate priority for GKL, and as such the group has lowered its target price for GKL shares from KRW13,000 to KRW10,000 due to lingering uncertainty.
Central to Choi’s concern is a recent announcement by GKL that it had signed a new 10-year lease for its existing casino at Gangnam COEX in Seoul. The company had previously flirted with the idea of acquiring a casino site in Seoul as a means of addressing excessive rental payments at its existing properties but abandoned that plan in February, claiming it did not meet the “necessary requirements” to pursue a feasibility study.
“Considering the need to secure mid-to-long-term growth drivers, now is the time for capital expenditure,” Choi stated this week.
“While the possibility of GKL establishing its own casino had been raised as a means to secure mid-to-long-term growth drivers, I assess the actual likelihood of this happening as low, given the disclosure regarding the 10-year lease renewal at COEX.”
The analyst noted that, “The COEX branch is aging compared to other major domestic casino operators, making this a time when reinvestment is necessary.”
He also explained that he had “lowered the target price in consideration of potential cost increases stemming from higher rent and facility renovations following the COEX lease renewal, as well as uncertainties regarding mid-to-long-term capital allocation.
“Although investment is needed to prepare for competition with the Osaka casino – scheduled to open in the fall of 2030 – and to secure mid-to-long-term growth momentum, plans for utilizing the company’s current net cash holdings of KRW380 billion remain uncertain.”
On a positive note, Choi suggested that a proposal by the Ministry of Culture, Sports and Tourism to increase the tourism fund levy it charges on casino operators from 10 to 15% of revenue as likely to have less impact on GKL than other operators.
“Regarding recent concerns across the casino industry about a potential hike in tourism fund contributions, the impact on GKL is expected to be limited,” he said. “Since the revenue volume of its individual branches is not substantial, they are unlikely to be subject to the increase.”
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