South Korean casino operator Grand Korea Leisure (GKL) saw profit plunge over 40% in Q4 2015 as the Chinese economy and Beijing officials combined to stem the flow of high-rollers visiting GKL’s casinos.
GKL, which operates three Seven Luck-branded foreigners-only casinos, reported revenue falling 17.4% to KRW 23.3b (US $19.1m) in the three months ending Dec. 31, while net income fell 40.6% to KRW 18.4b. The revenue decline is slightly better than the company had forecast last month.
Things were slightly less dire on the full year front, with revenue down 6.5% to KRW 505.7b, while operating profit slipped 20% to KRW 118.4b.
Recent enforcement actions in China against international casinos organizing travel for Chinese gamblers were deemed the chief culprit behind GKL’s fall, as the number of Chinese VIPs crossing GKL’s threshold in Q4 was down 37% year-on-year. Morgan Stanley analysts estimated that total VIP turnover at GKL properties was down 48%.
With China’s economic and political climates remaining highly uncertain, GKL is expected to shift some of its focus to the premium mass segments. Daiwa analysts suggested GKL would look to “enhance marketing channels for casual gamers and non-China markets in Asia.”
GKL has established a 2016 revenue target of KRW 560b but Morgan Stanley suggested 2016’s sales were likely to fall 3% to KRW 487b. Chinese VIP turnover is expected to fall 25% year-on-year while non-Chinese VIP and mass market turnover could grow 13% and 10%, respectively.
However, even if GKL meets its top line guidance, Morgan Stanley believes costs associated with generating these non-Chinese numbers will put further downward pressure on margins.
South Korea’s other main casino operator, Paradise Co Ltd, recently reported similar declines, with profit falling 12% to KRW 3.58b in Q4 and 32.2%% to KRW 65.3b for 2015. Paradise said the challenges had continued into 2016, with January’s sales down 5.5% year-on-year, although January’s total was up 43% from December, during which gamblers reportedly got unusually lucky.
