The authors are analysts of Shinhan Investment Corp. They can be reached at firstname.lastname@example.org and email@example.com, respectively. -- Ed.
4Q19 consolidated operating profit of KRW22.8bn (+181.5% YoY)
Grand Korea Leisure posted consolidated operating profit of KRW22.8bn (+181.5% YoY) on sales of KRW130.8bn (+17.0% YoY) for 4Q19, slightly missing our forecast of KRW25.3bn and the market consensus of KRW27.1 bn. Excluding one-off costs (additional severance payment of KRW2.5bn), earnings came in line with expectations. Top-line growth was driven by higher monthly sales in December (KRW51.5bn) than in October or November. It was the second time in 2019 that monthly sales exceeded the KRW50bn mark. The hold percentage climbed to the 11% range in 4Q and should rise further to 11.2% in 2020. Chinese and Japanese VIP drop went up 9.1% and 9.2% QoQ in 4Q, respectively, to KRW279.1bn and KRW308.3bn.
Earnings improvement expected in 1H20
Table drop increased in 4Q18-2Q19, but sales declined as promotional events caused the hold percentage to fall to 7-9% levels. We expect earnings to improve in 4Q19-2Q20 on base effect. Casino sales of KRW54.6bn (+57.2% YoY) recorded in January this year came in far higher than anticipated. While concerns over the coronavirus are at their highest, sales appear to remain solid in February thanks to Chinese and Japanese VIP visitors (similar trend seen at Paradise). We slightly revise up our consolidated operating profit forecasts to KRW29.9bn (+75.8% YoY) for 1Q20 and KRW31bn (+17.2% YoY) for 2Q20
Retain BUY for a target price of KRW27,000
Our target price for Grand Korea Leisure is kept unchanged at KRW27,000, based on 2020F EPS of KRW1,351 and a target PER of 20x (average PER of 2010 2016; PER reached 25-30x in 2013 2016 when growth was seen in inbound Chinese traffic). We retain our BUY rating in view of: 1) earnings improvement expected in 1H20 despite the coronavirus outbreak; and 2) dividend yield forecast at 3.96% for 2020.