While Macau’s world-leading casino market was bracing in September for a fourth straight month of year-on-year gaming revenue declines, the top operator in South Korea’s foreigners-only market was raking it in, largely from Chinese gamblers.
Kosdaq-listed Paradise Group (034230) reported a 17% increase in revenue for September over the same month in 2013 on table volume that rose 9%. The contribution from high rollers from China was up 17%, according to analysis from UBS — mass market was up 25% — building on a trend that saw table drop from Chinese VIPs rise almost 25% in the second quarter, accounting for 66% of total drop at the company’s five casinos.
Investment bank Standard Chartered believes the results—coupled with regulatory reforms designed to boost resort-scale investment and expansion in the form of destination casinos in the Seoul area and on the popular tourist island of Jeju—herald a “new era” for a market that enjoys better proximity than Macau to the big cities of northern China.
“Korea casinos, particularly [foreigners-exclusive] leaders Paradise and [Grand Korea Leisure], are ideally located to benefit from structural growth in outbound-China tourism,” analysts Philip Tulk and Tyler Ahn wrote in a recent client note.
They forecast Chinese visitation nationwide will grow 15% annually through 2016 and gaming revenue at Paradise and GKL to respond with annual revenue growth of 11%, which would outstrip their projection for regional growth by 200 basis points a year.
Paradise’s gaming revenue was up 22% last year, as Chinese tourism nationwide surged 52% to 4.3 million. Through the first half of 2014, China generated 40% of all foreign tourists to the country, and in its 16 foreigners-only casinos they’ve surpassed the Japanese as the principal revenue engine. Standard Chartered believes Chinese VIP visitation is growing by 15% a year.
“We expect [foreigner-exclusive casino] GGR to rise 3.5 times over 2013-20, a 20% CAGR,” Mr Tulk and Mr Ahn said, adding that “New IRs are likely to be key growth drivers.”
These include two resort casinos under development near the main international airport in Incheon—one by Paradise in partnership with Japanese pachinko giant Sega Sammy, the other by a consortium led by Las Vegas-based Caesars Entertainment. A third is planned for Jeju by a joint venture led by Genting Singapore. Macrolink Group, a Shenzhen-listed investment holding company, has teamed up with South Korea’s Black Stone Resort on another Jeju destination that may include a casino. Paradise, which owns three of the island’s eight casinos, is also considering expanding there.
Jeju, where Chinese travelers enjoy visa-free access, saw tourism from its giant neighbor jump 67% last year.