Grand Korea Leisure Co. (GKL), a casino operator in South Korea with Japanese gamblers accounting for about 25 percent of its overall casino users, is expected to benefit from a stronger Japanese currency against a Korean won, a local brokerage analyst said.

GKL’s annual operating income is estimated to increase by 10 percent based on the presumption that the dollar and yen appreciates 10 percent against the Korean won, Yang Il-woo, analyst at Samsung Securities Co., said in a report. The overall currency fluctuation has already started to revive demand for casino service among foreigners in the country, he added.

GKL is a unit under Korea Tourism Organization that operates foreigners-exclusive casino called Seven Luck. The company has two casino sites - each located in Samseong-dong, southern Seoul, and inside the Millennium Seoul Hilton hotel in Sowol-ro, central Seoul. Both sites are popular destinations for Japanese tourists and gamblers who account for about 25 percent of overall visitors. The number of Japanese gamblers will likely grow even more as they opt to benefit from the strong yen and increase their chip purchase.

In the first quarter of 2009 - when the exchange rate hovered around 1,600 won ($1.37) per 100 yen - the number of Japanese visitors to GKL reached 180,000, up 35 percent from the previous quarter. The Japanese yen has recently resumed its rally as the surprising Britain’s decision to leave the EU has been leading investors to flock to safe heavens like the yen or gold. Appetite for safe assets is expected to remain strong for a while.

GKL has also seen a rise in the number of Chinese gamblers, thanks to a growing number of Chinese tourists visiting Korea. This month alone, a total of around 600,000 Chinese tourists have landed in the country. In 2016, the number of Chinese tourists is expected to increase 90 percent from a year ago, particularly as those who have postponed their trips last year due to the outbreak of Middle East respiratory syndrome (MERS) will likely plan their trips this year. Korea has seen a 22 percent increase in the number of Chinese visitors in the second quarter from the previous year. Yang from Samsung Securities predicts that the number will grow even more in the following quarter.

Investors are also eyeing on GKL shares as they are expected to deliver bigger dividends. According to a brokerage consensus, GKL is expected to deliver a dividend yield of 3.7 percent this year based on an estimation of the mid-June share price. The return is similar to that of what Industrial Bank of Korea delivered last year - 3.7 percent - which was considered relatively high among other payouts. Investors also highlight the fact that GKL has been delivering interim dividends of 130 won per share for three consecutive years from 2013 to 2015. They expect the casino operator to provide additional yields this year as well.

The recent boost in GKL’s business has led to better-than-expected results. In the first three months of 2016, GKL raised 42.1 billion won in operating profit on sales of 136.6 billion won. Operating income was 16.5 percent higher than the brokerage firms’ consensus. Analysts note that the improvement in performance was boosted by an increase in the so-called hold rate, which refers to the rate of actual income reaped by a casino operator from the total amount of chips purchased by gamblers. According to Yuanta Securities Co., the hold rate of GKL increased by 1 percentage point from 13.4 percent in the end of December to 14.4 percent in the end of March this year.

According to market data provider FnGuide, brokerage firms project GKL to post an operating profit of 30.1 billion won in the second quarter ending June. Although the figure is a drop from the first quarter income, it is still 10.7 percent higher than the 27.2 billion won estimated by brokerages in the end of April.

By Kim Tae-joon

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