Pent-up Demand Being Evidenced
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. -- Ed.
Kangwon Land is set to enjoy business normalization on an easing in social distancing measures. Furthermore, growth momentum from additional tables and operating hours should reach full swing. With pent-up demand being confirmed amid repeated suspensions and re-openings, we expect the firm to enjoy a full-fledged recovery in line with a rising vaccination rate. We continue to prefer Kangwon Land amongst casino industry players.
Anticipate rapid normalization of business operations
Maintaining Buy and a TP of W36,000, we continue to prefer Kangwon Land amongst casino industry players. With pent-up demand to be unleashed once vaccines become widely available in Korea, a vaccination-driven normalization in operating conditions should lead to a rapid recovery in earnings.
Under its vaccination program, the Korean government is targeting an easing in social distancing measures in 4Q21, which in turn should lead to a lifting of the restrictions on simultaneous visitor and seating capacity numbers for casino operators. Given that Kangwon Land boasts strong customer accessibility (as the only domestic casino allowing the admission of Korean nationals), an easing in social distancing rules should spur a rapid normalization of its operations.
Against this backdrop, growth momentum secured last year from additional tables (+10%) and operating hours (+10%) should reach full swing. All in all, effects from vaccinations is expected to drive business normalization, in turn translating into healthy earnings growth.
Pent-up demand being evidenced
Pent-up demand for Kangwon Land’s casino facilities has been confirmed every time the firm resumed operations amid repeated suspensions and re-openings.
Given that: 1) Kangwon Land’s number of business days totaled 45 in 1Q21 (51% of normal level); 2) the number of maximum simultaneous visitors was 1,200 (20% of normal); and 3) the number of tables and operating hours both rose by 10% y-y, sales in 1Q21 should have been 12% of the 1Q20 figure (=51%*20%*110%*110%). But, actual sales in 1Q21 proved 3.5x higher that, arriving at 41% of the 1Q20 level. This means that both the number of visitors and per capita spending upped sharply after the resumption of operations, evidencing pent-up demand. Thus, with pent-up demand being confirmed, business normalization should help the company to see a full-fledged recovery.