JP Morgan Securities (Asia Pacific) is keeping an optimistic stance on the future of South Korea’s Kangwon Land. The casino operator has seen some slight improvement since last year and the brokerage firm expects that the improvement will continue as the second half of 2019 develops. From now through the end of the year, the company’s gross gaming revenue (GGR) could end up being 6%-7% higher.
Following Kangwon Land’s recently divulgement of its second-quarter finances, JP Morgan is confident that the future is bright for the company that runs the only casino in the country where locals can gamble. It believes that the GGR will not only increase this year, but that it will continue to rise over the next couple of years, as well. The brokerage’s analysts predict an annual increase of around 5% or 6% in both 2020 and 2021.
The forecast may seem a little strange, given the casino operator’s second-quarter performance. Kangwon Land reported last week that its net profit attributable to shareholders was about $42.12 million in the quarter, which amounts to a decline of 46.1% over the same quarter last year. However, sales increased by 7.5% to $299.43 million and operating profit jumped a massive 50.2% to a little more than $142.02 million. This led the JP Morgan analysts, DS Kim, Christine Wang and Jeremy An, to assert, “These are all decent, if not solid, levels of growth, but they are already baked into market expectations. They added that the mass-market improvement was especially encouraging since it “reflects the company’s ongoing efforts to improve efficiency…including shifting dealer hours to focus on peak times and improved table and slot layouts, despite a challenging operating environment.”
The analysts point out that the second-quarter GGR increased by 6% to $298.45 million, led by an increase in both mass-market and VIP gaming. The company’s mass table gaming operations saw sales climb by 6.9% to $133.26 million and its VIP business increased 2.7% to $114.6 million. Kangwon Land’s private, members-only group saw revenue jump 13.3% over the same period last year, coming in at $50.64 million.
This was the first quarter in two and a half years that saw Kangwon Land report positive profit and revenue growth. As a result, the analysts could confidently state, “We like Kangwon Land’s profit turnaround opportunity, as we forecast operating profit growth in the mid-teens in 2H19, partially helped by (very) easy comps. We think this could trigger a ‘relief recovery’ in the shares following 2+ years of severe profit declines.”
