Inside Asian Gaming

FEB 2019 INSIDE ASIAN GAMING 21 TURNING JAPANESE Despite the slow ramp, Morgan Stanley’s Jay Lee in Seoul expects that completing Paradise City capital expenditures will return Paradise to positive cash flow for the first time since 2013. Moreover, the report, co- authored with Morgan Stanley Managing Director in Hong Kong Praveen Choudhary, notes Paradise has transitioned from Chinese VIPs to Japanese and others more successfully than rival Grand Korea Leisure (GKL), and Paradise City will likely attract Chinese VIPs when that market rebounds. Founded in 2005 and controlled by the government’s Korea National Tourism Organization, GKL operates Seven Luck casinos at two prime locations in Seoul and one in Busan. GKL parlayed geography and a faster embrace of Chinese customers to overtake Paradise in the foreigner casino market a decade ago, but Paradise caught up. Paradise’s 2018 gaming revenue of KRW638 billion is 29% greater than GKL’s KRW493 billion, estimated by JP Morgan, and the gap will likely widen. GKL’s Seoul casino floors have more buzz, but Morgan Stanley sees limited upside, since GKL shuns junket promoters – that could change – and doesn’t plan to build an IR after initially showing interest in an Incheon license. Paradise City can better cater to premium players because it controls hotel rooms there. It says occupancy has improved to 70% on weekends, boosted by hocance, Korea’s term for stay-cation. But the domestic hocance market doesn’t help gaming revenue. Incheon’s Free Economic Zone on Yeongjong Island fits the foreigner casino model because it’s on the doorstep of Incheon International Airport, gateway to increasingly popular Seoul, hub of K-Pop and K-Culture. With a second terminal completed in January last year, Incheon accommodated more than 68 million passengers after placing 19th in 2017 with 62 million. Shanghai, Beijing and Tokyo are all within two hours flying time – all closer to Incheon than Macau – and a quarter of the world’s population lives within 3½ hours. Express trains take 43 minutes to reach Seoul.