The stocks of all four listed Korean casino companies have plummeted in recent weeks, impacted by a raft of headwinds including China capital controls, a strong won, concerns over a potential increase in the Tourism Promotion and Development Fund levy and seasonality.
The issue was highlighted by Yonhap News Agency, which noted that Paradise Co had over the past week fallen 55% from its year-to-date high while Kangwon Land had dropped by 27%. Grand Korea Leisure last week hit a new 52-week low and Jeju Dream Tower operator Lotte Tour Development also fell to new lows.
Seasonality has played its part, with Daol Investment & Securities commenting, “Last month, Lotte Tour Development, Paradise and GKL all saw a decline in ‘drop amounts’ (total chip purchases) compared to August, which was a peak season. We anticipate a gradual transition into the off-season. As growth momentum weakens, the environment makes it likely for stock prices to also experience a downturn.”
However, analysts have pointed to a multitude of factors that are weighing heavily on Korean casino stocks, with recent year-on-year declines in Macau’s monthly GGR numbers seen as an indicator.
Lee Hwan-wook of Yuanta Securities said, “Macau’s casino revenue in September stood at MOP$18.1 billion, a 1.2% decrease year-on-year. This downward trend compared to the previous year has persisted even after the June-July period, which was affected by the World Cup.
“This appears to be the result of tightened capital controls by Chinese authorities – such as the stricter taxation and reporting requirements for overseas trusts implemented in July – dampening the betting sentiment of Chinese VIPs.”
With the exception of October, which was bolstered by the recent National Day Golden Week holiday, Lee noted, “It is unlikely that the sentiment of Chinese VIPs and high-spending mass-market customers will recover in the short term.”
Another concern has been the recent strengthening of the Korean which can reduce the spending power of foreign visitors within casinos, although investors may look at a proposed increase in the annual levy charged on operators from 10% to 15% of GGR as a more long-term headwind.
On a positive note, Hana Securities analyst Lee Ki-hoon hinted that there could be a way for the government to raise further funds without increasing the levy.
“The Tourism Promotion and Development Fund is financed by revenue from casinos catering to foreigners and the departure tax,” he wrote. “If the amendment to raise the departure tax from the current 7,000 won to 20,000 won starting in the second quarter of next year is finalized, total collections are projected to more than double.
“Since this would alleviate concerns regarding a funding shortfall to some degree, it is estimated that the planned hike in the fund contribution rate for casinos will be significantly scaled back compared to initial fears It is necessary to wait for confirmation.”
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