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Regulatory pressure hurts Korea’s Kangwon Land as revenue falls

Tuesday, 13 February 2018 05:05
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Kangwon Land, the only casino in South Korea in which locals are allowed to gamble, saw its gaming revenue fall by 6.0% year-on-year to KRW1.52 trillion (US$1.4 billion) in 2017 amid regulatory pressure that led to a reduction in operational gaming tables.

The figures, released on Monday, included a 3.4% decline in 4Q17 to KRW377 billion, down from KRW390.2 billion 12 months earlier.

Notably, mass table revenue suffered the biggest decline, falling 8.7% from KRW186.6 billion in 4Q16 to KRW170.3 billion in 4Q17. Net profit for the year fell 3.7% to KRW437.5 billion.

The numbers follow Kangwon Land’s decision to reduce the number of tables in operation throughout most of 2017 to around 130, well below the maximum allowed of 180, due to increasing pressure from South Korea’s Ministry of Culture, Sports and Tourism.

The Ministry has since issued a new directive, effective from 1 January 2018, that reduces both the maximum number of tables allowed to 160 and daily operating hours from 20 to 18.

In a note seen by Inside Asian Gaming in January, JP Morgan analysts DS Kim and Sean Zhuang said that the changes formed part of the government’s Gaming Industry Reform Plan announced by the Prime Minister’s Office on 14 December which “clearly points to further regulatory tightening and increasing oversight on local gambling” and includes four major initiatives, “one of which effectively targets Kangwon Land by redesigning the Revenue Cap Policy with heavier penalties and stricter legal enforcement.”

While the reduced table cap won’t have any immediate impact on Kangwon Land given that it had already voluntarily removed tables from operation, the new operating hours “should have some direct impact” in 2018.

Kim and Zhuang noted previously that even if the Gaming Industry Reform Plan failed to pass the National Assembly, Kangwon Land would likely continue to lay low.

“Our read on the government’s Gambling Industry Reform Plan points to further regulatory tightening and increasing oversight of local gambling, possibly throughout this administration, and we believe Kangwon has no choice but to keep curbing its revenues to avoid further scrutiny for a (good) while,” they said.

“Even in the medium term, we believe management is unlikely to allow its business to grow faster than GDP (which can be seen as a maximum politically acceptable level of growth for gambling), hence we feel it is reasonable to assume its growth potential is effectively ‘capped’ at ~3% per annum at best, possibly throughout this administration until 2022.”


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