South Korea’s first true integrated resort is expected to open on April 20, although concerns remain about the potential for growth in the foreigner-only market.
When Paradise Group and Japan’s Sega Sammy open their KRW1.3 trillion ($1.1 billion) property in Incheon next month, it will be the country’s largest casino to date.
The opening will come as other planned projects struggle to make headway and amidst doubts over the growth potential of the market given its reliance on overseas visitors.
Paradise City will be located about 1.1 km from Incheon International airport, a zone which is ultimately scheduled to host at least two other major IR projects. Just 40 minutes from downtown Seoul. It is within a four-hour flight of Hong Kong and Taiwan and just 90 minutes from Beijing, Shanghai and Tokyo. There is a population of about 1.35 billion people in the surrounding region.
Paradise owns 55 percent of the venture, with Sega Sammy holding 45 percent.
The casino will have a total area of 13,553 m2. It will open with 154 game tables, 281 slot machines and 4 electronic table games (62 seats). The remaining facilities under the first phase, which will include commercial facilities and a premium spa are scheduled to be completed in 2018.
“Paradise City will deliver a best-ever resort experience to every visitor with highly sophisticated spaces integrating art and entertainment, and world-class hospitality,” Sega Sammy said in a release.
The Japanese pachinko company has dropped plans for a MICE development in the city of Busan in order to concentrate its resources on the development of Paradise City.
According to a recent note from Shinhan Investment, the opening of Paradise City is likely to boost the Paradise Co’s revenue by about 35.3 percent.
“Paradise Co as a whole is forecast to post sales of KRW938.6 billion ($805.3 million) in 2017,” analyst June-won Sung said in a note.
The figure includes KRW751.0 billion in casino sales, up 24.8 percent in year-on-year terms.
“The share price is projected to climb further if monthly earnings of the new casino resort come in line with the consensus after the opening. Costs may become an issue… if sales fall short of expectations.”
Sung said he expected Paradise Co to record “total operating profit of KRW54.3 billion (-24.3 percent year-on-year) and net profit of KRW23.1 billion (-64.6 percent year-on-year) in 2017.”
However, the opening of the new IR may come at the expense of other casinos operating in the country. According to Daiwa Securities, Grand Korea Leisure expects increased competition to hold back GGR this year. The company is forecasting 2017 casino sales to be KRW530 billion (US$460.1 million), slightly lower than in 2016.
South Korea’s two foreigner-only casinos have seen improved results in 2016, coming off a weak comparison with 2015 when an outbreak of Middle Eastern Respiratory Syndrome triggered a slump in visitor arrivals.
The casinos have also been struggling with a crackdown on marketing in mainland China, making it more difficult to reach the key Chinese VIP players. A further wrinkle has been Beijing’s decision to ban package tours to the country in an apparent response to the installation of the THAAD US missile system, designed to protect South Korea from North Korea, but viewed as a potential threat by China.
As a result analysts remain wary about immediate growth prospects.
Hong Kong-listed Lippo Group earlier this month completed its withdrawal from a project to build an integrated resort in Incheon in a consortium led by U.S. operator Caesars Entertainment. When it first announced its decision to withdraw in December last year, it cited the current outlook for the industry in North Asia and volatile global economies.
Paradise reported 2016 total sales up 12.9 percent with casino sales up 14.2 percent, however in Q4, which was not affected by the MERS-hit year-ago comparison, sales were down 2.6 percent with casino sales down 3.7 percent.
Operating profit slumped 41.9 percent to KRW6.4 billion, mainly due to losses from the IR project.
Its overall drop in the quarter was dominated by Chinese VIPs, which made up just under half of the total of KRW1.3 trillion. The Japanese contributed KRW308 billion, while the mass market was the smallest segment at KRW182 billion.
Grand Korea Leisure Co reported an 85 percent year-on-year increase in net income for the fourth quarter of 2016, to KRW34.15 billion. Revenue rose 20.5 percent year-on-year to KRW148.62 billion.
However, bucking the trend was Kangwon Land, the country’s only casino where locals are permitted to gamble. Profit for Q4 fell 31.4 percent, to KRW63.75 billion, compared to KRW92.97 billion in the prior-year period.
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