Casino
The author is an analyst for Shinhan Securities. She can be reached at inhae.ji@shinhan.com -- Ed.
Rapid recovery in inbound traffic from countries other than China
According to monthly traffic data released on June 29, inbound travelers recorded around 870,000 people in May. Amid upbeat expectations for growth in visitors from Japan and China during long weekend holidays, Japanese travelers reached 180,000 and Chinese travelers rose slightly to 130,000 (vs. 110,000 in April). Chinese inbound traffic has started to improve, but the pace of recovery is falling short of market expectations. We continue to note sharp growth in inbound traffic from countries other than China.
Comparing May 2023 numbers with pre-pandemic May 2019 figures (MoM comparison difficult due to long weekend holidays), we find that inbound traffic from non-Asian countries has recovered by 91%, Asian countries excluding Japan and China by 72%, Japan by 64%, and China by 26%. By continent, inbound traffic from Oceania has recovered by 111%, Americas by 105%, Europe by 82%, worldwide by 51%, and Asia by 51% compared with pre-pandemic levels. Visitors from the US, in particular, remained steady at 130,000 levels as in April, reaching on par with China and accounting for the third largest share of inbound traffic to Korea.
The rise in global popularity of K-culture, including K-pop and K-dramas, over the past three years during COVID-19 lockdowns has prompted travelers to pick Korea as a top destination following the removal of travel restrictions. An unprecedented rise in inbound traffic is expected for June, with the BTS 10th Anniversary Festa attracting fans from all around the world.
In the end, it all comes down to earnings
In June, foreigner-only casino stocks underperformed the broader market by a wide margin. May sales hinged on hold percentage with Paradise reporting sales of KRW70.1bn, the second highest on record, thanks to significant improvement in hold percentage. In contrast, Grand Korea Leisure’s hold percentage reversed solid gains seen over the past three months, causing sales to plunge MoM to KRW25.3bn in May.
Hold percentage, i.e., the casino’s win to customer’s drop, is dependent on luck factor. The percentage converges to the mean on an annual basis, but tends to fluctuate widely on a monthly basis due to variables such as winning percentages, gaming skills of players vs. bankers, and marketing campaigns (offering of free chips, junkets, etc.). Grand Korea Leisure’s hold percentage, which averages around 13-15%, temporarily rose above 18% in February before falling back to normal levels in May.
Sales indicators are also important, with drop amount seen as a key factor affecting the market cap of casinos. The table drop of the two foreigner-only casinos came in at solid levels for May, alleviating concerns over the dip in earnings at Grand Korea Leisure. The company's earnings are likely to rebound on improvement in hold percentage in June.
Share performances of the casinos, however, were both sluggish despite Paradise's stronger results vs. Grand Korea Leisure, with investors maintaining a narrow view that foreigner-only casinos depend predominantly on Chinese visitors. Despite rapid growth in table drop from visitors from countries other than China, investor sentiment continued to sway on China’s stimulus delays, relatively slow recovery in Chinese inbound traffic, as well as political issues arising from the start of the year. For sentiment to improve, the casinos will need to prove investors wrong with reports of solid earnings for June.