Expect weak results for GKL and Paradise; Morgan Stanley

Foreigner-only casino operators, Paradise Group and Grand Korea Leisure Co will see weak results in 4Q15 due to the ongoing decline in Chinese VIPs, says Morgan Stanley.

Sales are expected to decline 18 percent year on year for GKL as the number of Chinese VIPs continued to fall by 50 percent year on year in 4Q15 (vs. 44 percent in 3Q15). The total drop is estimated to continue to fall by 29 percent year on year and operating profit is expected to come in below its initial estimate of W30 billion, due to “to higher-than-expected complimentary/ promotional costs and severance payment to be booked for the quarter“.

For Paradise, based on monthly data, sales are tracking to land an increase of 5 percent year on year, which is in line with their previous estimates.

The year on year growth have been driven by “1) abnormally high hold rate,and 2) ongoing consolidation impact from Busan Lotte casino during the quarter,” according to Morgan Stanley analysts.  Operating profit is expected to come in at W17 billion, below their estimate of W19 billion due to “higher-than expected year-end bonus payment to be booked for the quarter.”

On the other hand, Kangwon Land is expected to see operating profits at W129 billion (+8 percent year on year) with a 7 percent year on year increase in sales. According to Morgan Stanley this is driven by: “ 1) ongoing mass revenue growth of 11% YoY and 2) VIP revenue recovery”.

The 4Q15 trend will be a good indicator of 1H16 results, according to Morgan Stanley.