Three South Korean casino companies saw sharp stock declines on the 15th following reports that the government is considering raising the tourism development fund rate from 10% to 15% for casinos with annual revenue exceeding 10 billion won. Lotte Tour Development fell 14.6%, Paradise dropped 13.5%, and GKL declined 10.8% in a single trading session. The proposed rate increase would require casinos to contribute a larger portion of their gross gaming revenue to the government fund, triggering investor concerns about profitability. South Korea's tourism development fund currently applies a 10% levy on casino operators exceeding the 10 billion won annual revenue threshold, a regulatory framework established under the Tourism Promotion Act.
Three Casino Stocks Record Double-Digit Declines on the 15th
Lee Hyun-ji, a research analyst at Eugene Investment & Securities, stated that the government is reviewing a plan to raise the fund contribution rate to 15% for casinos with annual gross gaming revenue exceeding 10 billion won. The three listed casino companies experienced simultaneous double-digit percentage drops in stock price on the 15th in the domestic stock market.
Lee noted that based on last year's data, the top six inland casino venues excluding Inspire are all operated by Paradise and GKL. While Lotte Tour Development's fund payment authority is the Jeju provincial government rather than the Ministry of Culture, Sports and Tourism, requiring a separate ordinance amendment, the analyst emphasized that all listed foreign-only casino operators face similar prospects of deteriorating profitability.
Eugene Investment Analyst Projects 20-30% Operating Profit Decrease
Based on estimates, the fund burden for foreign-only casinos this year is projected at approximately 95 billion won for Paradise, 60 billion won for Lotte Tour Development, and 46 billion won for GKL, according to Lee's analysis. If the burden rate increases to 15%, the additional amounts would be approximately 47 billion won for Paradise, 30 billion won for Lotte Tour Development, and 23 billion won for GKL, resulting in operating profit decreases of 20-30% compared to previous estimates.
Implementation Requires Tourism Promotion Act and Jeju Special Act Amendments
Lee assessed that actual implementation will take considerable time. The analyst stated that while fund burden amounts increase proportionally with casino revenue growth, raising cost pressures, the measure faces multiple procedural stages including amendments to the Tourism Promotion Act and its enforcement decree, as well as the Jeju Special Act and related ordinances, making short-term implementation difficult. The analyst recommended monitoring detailed provisions as they are disclosed.
The analyst characterized the situation as a short-term stock price adjustment driven by psychological negative sentiment rather than immediate earnings damage, citing the strong fundamental business strength of the three casino companies.
Q2 Performance Shows Strong Growth Amid Favorable Exchange Rate Environment
Lee stated that unlike Macau where growth is slowing, South Korea's foreign-only casinos recorded strong drop amount growth rates in Q2 this year. The analyst noted that both VIP and general customers are flowing in evenly amid a favorable exchange rate environment due to won weakness. Lee projected that Lotte Tour Development and Paradise will achieve record-breaking performance in Q3, the seasonal peak period.
The analyst added that all three casino companies are trading at 12-month forward price-to-earnings ratios of 8x, representing historically low valuations. Considering the second-half business conditions and earnings performance, the stock price declines are excessive, Lee concluded.
FAQ
What caused the sharp decline in Korean casino stocks on the 15th?
Three South Korean casino stocks fell sharply on the 15th following reports that the government is considering raising the tourism development fund rate from 10% to 15% for casinos with annual revenue exceeding 10 billion won. Lotte Tour Development dropped 14.6%, Paradise fell 13.5%, and GKL declined 10.8%.
How much would the proposed fund rate increase impact casino companies' operating profits?
According to Eugene Investment & Securities analyst Lee Hyun-ji, if the fund rate increases to 15%, the additional burden would be approximately 47 billion won for Paradise, 30 billion won for Lotte Tour Development, and 23 billion won for GKL, resulting in operating profit decreases of 20-30% compared to previous estimates.
How long will it take to implement the tourism fund rate increase?
Eugene Investment analyst Lee Hyun-ji stated that implementation will take considerable time as the measure requires multiple procedural stages including amendments to the Tourism Promotion Act and its enforcement decree, as well as the Jeju Special Act and related ordinances, making short-term implementation difficult.
