A Turnaround Expected in 4Q21

The authors are analysts of Shinhan Investment Corp. They can be reached at jwsung79@shinhan.com and hanny.lee@shinhan.com, respectively. -- Ed.

 

Expectations for earnings rebound in 2H21 starting to be reflected

Following the news of COVID-19 vaccine development in the US, the share prices of hard-hit Grand Korea Leisure and other casino and travel companies are bouncing back. Although Grand Korea Leisure is expected to post operating losses in 2020 and in 1H21 as well, expectations for an earnings rebound in 2H21 is driving up its share price. It is difficult to forecast when the mandatory 14-day self-quarantine will be lifted and when the vaccine will become available in countries where its major customers reside (Korea, China, Japan). We only assume the quarantine requirement to be eased from 4Q21 based on media reports.

Consolidated forecasts: KRW59.6bn loss in 2021, KRW64.5bn profit in 2022

We may have to wait one more year to see an improvement in earnings. The removal of the quarantine requirement or systematic changes, such as the introduction of a quarantine-free travel bubble, will be needed to bring in Chinese and Japanese VIP customers who make up about 70% of the company’s sales. It is impossible at this stage to make any projection as to the timing. Nonetheless, we believe it is positive that earnings are passing the trough.

Assuming that travel will be possible from 4Q21, we forecast consolidated operating losses of KRW31bn for 3Q20, KRW27bn for 4Q20, KRW24.1bn for 1Q21, KRW21.4bn for 2Q21, and KRW22.3bn for 3Q21. We assume a turnaround in 4Q21 with a profit of KRW8.2bn. For the full year, consolidated operating losses should amount to KRW63.2bn in 2020 and KRW59.6bn in 2021. We expect a profit of KRW64.5bn in 2022.

Retain BUY and raise target price by 13.3% to KRW17,000

Grand Korea Leisure will likely suffer losses in 2020 and 2021. We changed the base year for our target price calculation to 2022. Our target price of KRW17,000 is based on 2022F consolidated EPS of KRW801 and a target PER of 22x (average PER of 2012-2017 recorded during growth in Chinese customers). Our earnings forecasts are subject to change depending on the availability of COVID-19 vaccine and removal of the mandatory 14-day self-quarantine. Grand Korea Leisure has ample cash holdings but is likely to post a net loss in 2020. We estimate a KRW50-range dividend per share or none this year, vs. KRW659 in 2019. (Dividend payout varies widely depending on the company’s commitment.)

Copyright © BusinessKorea. Prohibited from unauthorized reproduction and redistribution