Jackpot! Remote South Korea casino cleans up as China gamblers fold

NagaCorp

24/02/2016 23:00

* Asia operators look to cultivate non-China business 
    * Kangwon Land generates roughly half of S.Korean gaming 
revenue 
    * Firm's monopoly on local gambling to last until 2025 
 
    By Joyce Lee 
    JEONGSEON, South Korea, Feb 25(Reuters) - Asia's best 
performing casino won't be found on Macau's Cotai Strip, 
Singapore's waterfront or even the shores of Manila Bay, but 
tucked away at the end of a winding mountain road, three hours 
east of Seoul. 
    While casinos across the region suffer from Beijing's 
crackdown on graft and ostentatious spending, Kangwon Land Co 
Ltd  035250.KS  is cashing in on its monopoly on domestic 
patrons, bypassing the Chinese junket operators and big spending 
VIPs that its rivals rely on. 
    Kangwon Land is the top performing casino stock in Asia over 
the past year, having surged 21 percent. Now valued at $7.2 
billion, it trails only Sands China  1928.HK  and Galaxy 
Entertainment  0027.HK  in the region.  
    "Kangwon Land does better and better as small fry keep 
coming," said Kim Jung-suk, owner of the Ten Billion Pawn Shop, 
one of dozens of colourful pawn shops clustered outside the 
resort's gates. "There's no off-season."     
    South Korea has 17 casinos, but only Kangwon Land is allowed 
to admit locals, enabling steady growth despite its remote 
location and lack of high-rolling VIP clients, Chinese or 
otherwise. 
    With 200 tables and 1,360 slots packed tightly into an area 
slightly smaller than two football fields, the casino and ski 
resort raked in 1.63 trillion won ($1.33 billion) in revenue in 
2015 - nearly all from gambling. That was up 9 percent and 
accounted for about half of South Korea's gaming revenue. 
    By comparison, revenues at South Korean foreigner-only 
casino operators Paradise Co Ltd  034230.KQ  and Grand Korea 
Leisure (GKL)  114090.KS  fell 9 percent and 6.5 percent 
respectively, according to Reuters' calculation from company 
filings.  
    Revenues at those two companies were hit by a halt in 
marketing to Chinese VIPs after mainland authorities detained 13 
people working for them in 2015.     
    At Kangwon Land, nearly all visitors are South Korean and 99 
percent are non-VIPs, according to eBEST Investment & 
Securities. At Paradise's three casinos, Chinese VIPs made up 55 
percent of betting last year. 
    
    COMPETITION - FOR SOME 
    Competition is poised to intensify for casinos courting 
Chinese visitors. 
    A consortium of U.S.-based Caesars Entertainment Corp 
 CZR.O  and Lippo Ltd  0226.HK , and a tie-up between Paradise 
and Japan's Sega Sammy Holdings Inc  6460.T , are each building 
a casino resort in Incheon, west of Seoul. Operators for two 
more planned integrated resorts will be chosen on Feb. 27. 
    Las Vegas Sands Corp  LVS.N  said last year it would 
consider investing up to 5 trillion won in an integrated resort 
in the city of Busan - if locals are allowed to enter the 
casino. 
    But state-run Kangwon Land's monopoly on local players is 
due to hold until 2025 under a political concession made to the 
economically depressed former mining area. Analysts and industry 
insiders do not expect socially conservative South Korea to 
change its policy anytime soon. 
     
    CHINA SQUEEZE 
    Elsewhere in Asia, casinos rely on mainland Chinese for as 
much 80-90 percent of revenue in Vietnam, to roughly 20 percent 
in the Philippines, where operators have also outperformed Asian 
peers by tapping locals. Cambodia's Nagacorp Ltd  3918.HK  has 
also seen earnings surge thanks to demand from Vietnam and 
wealthy southeast Asian customers. 
    China's anti-graft campaign began to weigh on the gambling 
industry in 2014, especially in Macau, where mainland players 
accounted for about 70 percent of revenue. In January, Macau's 
gambling revenues fell for a 20th consecutive month to around 
five-year lows. 
    Shares in Macau operators including Sands China, Galaxy 
Entertainment, Wynn Macau  1128.HK  and MGM China Holdings Ltd 
 2282.HK , have lost between 28 and 57 percent in the past year. 
    Even with a trailing 12 month price-to-earnings ratio of 
23.17, nearly double that of peers Paradise and Grand Korea 
Leisure, many analysts consider Kangwon Land a safe bet due to 
its local monopoly. 
    "It has very steady revenues and profits, but can't expect 
much growth without government approval for additional 
capacity," said Lee Jin-woo, fund manager at KTB Asset 
Management, which owns Kangwon Land shares. 
    "As a stock, it's like a utility." 
    Twelve minutes after the doors opened at Kangwon Land on a 
recent morning during a long holiday weekend, 2,739 people, many 
of them men in their late 40s and 50s, had signed up to enter. 
    "I come here because I enjoy baccarat," said Kim Sung-hwa, a 
53-year-old woman who had arrived on a bus from Seoul. "It's 
either here or go abroad." 
    ($1 = 1,226.7700 won) 
 
 (Additional reporting by Farah Master in HONG KONG; Editing by 
Tony Munroe and Lincoln Feast) 
 ((jungyoon.lee@thomsonreuters.com; +82 2 3704 5609; Reuters 
Messaging: jungyoon.lee.thomsonreuters.com@reuters.net)) 
 
Keywords: SOUTHKOREA CASINO/KANGWON LAND