[Edaily Kang Gyeong-rok Travel Reporter] While second-quarter drop revenue for South Korea’s three foreigner-only casinos rose by double digits, the extent of earnings improvement is expected to vary by company. Lotte Tour Development and Grand Korea Leisure (GKL) are projected to see operating profit increase by more than 50%, whereas Paradise is estimated to see a decline in operating profit due to cost pressures.
According to a casino sector report released by Kiwoom Securities on the 13th, the second-quarter drop volume for Paradise, Lotte Tour Development, and GKL increased by an average of 14% compared to the same period last year. Drop volume—the amount of money customers exchange for chips at a casino—is an indicator of a casino’s operating scale. The increase in drop volume is attributed to the weak won and a recovery in demand from foreign visitors to South Korea.
Although operating metrics improved, stock prices moved in the opposite direction. As of the 10th, year-to-date stock price declines stood at 23.5% for Paradise, 28.8% for GKL, and 35.9% for Lotte Tour Development. The 12-month forward price-to-earnings ratio (P/E ratio) for the three companies has fallen to an average of 10.4 times. This is similar to the 10.5 times average for the Macau casino sector, as reported by Kiwoom Securities.

Lim Su-jin, an analyst at Kiwoom Securities, noted, “The domestic casino market is showing a clear divergence from Macau.” She explained that while the growth forecast for this year’s gross gaming revenue (GGR) in the Macau casino market has slowed to 5%, the drop volume of the three domestic companies continues to grow at a double-digit rate.
However, it is difficult to conclude solely based on P/E ratios that domestic companies are undervalued compared to their Macau counterparts. This is because their business structures, customer bases, debt levels, and ownership of integrated resorts differ. Differences between companies were also evident in second-quarter earnings forecasts.
Paradise’s second-quarter revenue is estimated at 321.1 billion won, a 12.9% increase from the same period last year. Operating profit is projected to be 38.7 billion won, a 9.8% decrease, falling short of market expectations.
Total drop volume rose 12.2% to 2.058 trillion won. However, the hold rate—the percentage of drop volume that remains as casino revenue—fell to 11.3%. In particular, with the hold rate reaching only 9% in June, the increase in drop volume failed to translate into higher revenue and profits. Analysts attributed the pressure on profitability to customer acquisition costs driven by rising fuel surcharges, as well as initial operating expenses for the Hyatt Hotel on Yeongjong Island, which opened last March.
The new hotel’s second-quarter room occupancy rate was estimated at approximately 50%. Kiwoom Securities lowered its target price for Paradise from 23,000 won to 19,000 won, noting that the normalization of hotel operations is taking longer than expected.
Lotte Tour Development is expected to report second-quarter revenue of 198.3 billion won, up 25.8%, and operating profit of 52.1 billion won, up 57.4%. Casino revenue is projected to rise 33.6% to 147.0 billion won. If these forecasts hold, it would mark a quarterly record.
Visitor numbers at the Jeju Dream Tower Casino rose by 23.2% to 183,000, while gross gaming revenue increased by 13.8% to 760.6 billion won. The hold rate stood at 19.3%, up 2.9 percentage points from the same period last year. Hotel room occupancy was estimated at 88%, with an average room rate of 260,000 won.
Regardless of operating performance, financial burdens remain. Kiwoom Securities estimates that Lotte Tour Development’s total debt at the end of this year will be 1.347 trillion won, with net debt at 1.1536 trillion won. Expected interest expenses are also projected to reach 128 billion won. Experts advise that debt restructuring and reductions in financial costs are necessary for improvements in casino operations to translate into increased net profit.
GKL’s second-quarter revenue is projected to rise 16.9% to 118 billion won, while operating profit is expected to increase 57.6% to 25.2 billion won. Total drop volume is estimated to have risen 15.1% to 1.0529 trillion won.
Chinese VIP drop volume led the performance, rising 47.7% to 215 billion won. Drop volume at the Gangnam COEX branch increased by 29.6%, and at the Busan Lotte branch by 23.3%. The Yongsan Dragon City branch saw a 18.6% decline.
Analyst Lim noted, “While GKL’s performance is improving due to the recovery of Chinese VIPs, the lack of an integrated resort means that growth in the general customer segment is slower than that of competitors, which is a concern.”
Kiwoom Securities maintained its target prices for Lotte Tour Development and GKL at 28,000 won and 16,000 won, respectively. It lowered its target price for Paradise to reflect declining profitability despite an increase in drop volume. Although the stock prices of all three companies fell, profitability for Paradise, debt levels for Lotte Tour Development, and medium- to long-term growth momentum for GKL were each cited as factors that could drive a rebound in their stock prices.