One Step Closer to Normalization
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. -- Ed.
Thanks to a rising vaccination rate, the transition to a period of coexistence with Covid-19 is now being discussed. Given this trend, we expect casino accessibility to rebound moving ahead. Recovery is likely to prove faster for casinos open to domestic visitors than for foreigner-only casinos. We maintain a Positive view on the casino industry.
One step closer to normalization
Under the prolonged Covid-19 crisis, the casino industry has seen repeated share price fluctuations based on expectations for easing of the pandemic and disappointment from the spread of variants. Backed by accelerating global vaccination rates, the transition to a period of coexistence with Covid-19, which entails softened restrictions on social and economic activities, is on the table, and some countries are moving to lighten travel regulations. As a result, it should only be a matter of time before casino accessibility is restored and sector earnings normalize. We maintain a Positive view on the industry.
Improved casino accessibility and lessened operational restrictions are keys to normalization
Sales recovery at Asian casinos has been slow due to the high dependence on foreign visitors. But, efforts are being made to reduce the impact of travel restrictions. Macau casinos are opening additional checkpoints to accommodate visitors from mainland China, and Singapore casinos are lifting quarantine measures for visitors from Hong Kong and Macau. Operational restrictions, such as bans on side betting, are easing as well.
Meanwhile, US casinos have already rebounded to pre-pandemic sales levels. We attribute the recovery to less dependence on foreign visitors and the effects of minimized social distancing related to casino operations. Given the nature of the industry (extremely inelastic customer demand), this development points to the possibility of a steep sales recovery at home, once casino accessibility and operational capacity are secured.
Preferences within casino sector: Kangwon Land > Paradise > GKL
In Korea, the vaccination rate is expected to exceed 70% by end-October, and a transition to coexistence with Covid-19 should be possible around November. Once the transition is in full swing, restrictions on casino operation, such as mandatory spacing between seats and the banning of side betting, may also be eased. Against this backdrop, we expect sales to recover in the order of casinos accommodating domestic visitors, foreigner-exclusive casinos with non-casino facilities open to domestic visitors, and casinos exclusively for foreigners. We present Kangwon Land as our top pick.