As social distancing regulations are eased and travel restrictions are lifted, casino accessibility should be improved, and casino industry conditions should be normalized. In particular, casinos that accommodate both domestic and foreign visitors should enjoy the effect of expanding their operational capabilities (compared to before the pandemic). We maintain a positive outlook for the sector.
The long-awaited re-opening begins
Thanks to the increase in the vaccination rate and the global transition to the COVID-19 pandemic, the benefits of easing social distancing regulations and lifting travel restrictions are expected to be fully reflected in the profits of casino players. As casino access is completely normalized, full-fledged earnings recovery should be confirmed. Accordingly, we maintain a positive outlook for the sector.
The expected recovery of the casino industry is expected to take place in the order of 1) easing social distancing regulations (business normalization) → 2) easing restrictions on movement between countries (increasing demand for high rollers) → 3) expanding inbound traffic (increasing general VIPs and large visitors). The Japanese government is expected to lift restrictions on cross-border movement around July, but for China, normalization is expected to be relatively delayed due to the prolonged zero-corona policy of the Chinese government. As a result, it is expected that profits will recover in the order of casinos that can accommodate both domestic and foreign visitors → casinos for foreigners and integrated resorts (IR) → casinos for non-foreigners. We present Kangwon Land as the best choice in the sector where the benefits of expanding operating capacity (e.g., operating hours and tables) should be visualized with business normalization from 2H22.
Casino for both Koreans and foreigners: Expect a steep profit recovery
U.S. casinos, which normalized their operations last year, are announcing record quarterly results that exceed pre-pandemic levels thanks to the release of pent-up demand. Looking at Korean casinos that satisfy both domestic and foreign customers, business hours increased as social distancing rules were lifted in April. As side betting becomes available from mid-May, operating conditions are expected to be almost normalized. As such, the possibility of release of pent-up demand laid the stage for a rapid recovery of 2H22 earnings at the pandemic level.
Casino for Foreigners: To recover to half the pre-pandemic level
Prior to the COVID-19 crisis, major customers of foreign-only casinos in Korea were Chinese and Japanese visitors (VIP drop amount: mid 30% for Chinese and early 40% for Japanese). As visa-free travel by Japanese is expected to resume around July, the pent-up demand of Japanese VIPs should be lifted from 2H22. However, it is difficult to expect Chinese VIP demand to return to normal before the pandemic this year as China is sticking to its zero-corona policy and junket regulations remain.
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