Hana Securities on the 6th said that for Lotte Tour Development, in addition to a steep improvement in fundamentals marked by three straight earnings surprises, a cycle of reduced borrowing fund and rising net profit will appear over the next two to three years. Accordingly, it maintained its buy rating while raising the target price to 29,000 won from 26,000 won.
In the third quarter of this year, Lotte Tour Development posted sales of 186.7 billion won and operating profit of 53 billion won. Beating the market consensus of 47.5 billion won, it achieved a record operating profit and three consecutive earnings surprises. Net profit came to 6.5 billion won, returning to the black. However, a total one-off expense of 13 billion won occurred, including a foreign exchange valuation loss on overseas convertible bonds (CB) due to the weak won (about 9 billion won) and a one-time premium fee following the repayment of the CB (about 4 billion won).
Casino sales last month were 50.4 billion won. Taking this into account, Hana Securities projected fourth-quarter operating profit at 44.5 billion won. Lee Gi-hoon, an analyst at Hana Securities, said, "Starting in November, operations run with in-house customers without agent sales, so absent variables, an additional rise in the hold rate may also appear."
The share of hotel rooms used for casino customers rose steeply to 31% in the first quarter, 42% in the second quarter, and 49% in the third quarter, out of 1,600 rooms. Lee said, "Operating profit of more than 90 billion won is expected in the second half alone, and next year's expected operating profit is 183.8 billion won, which is sufficiently conservative," adding, "Even just considering this, if you add depreciation of about 90 billion won a year and non-operating lease liabilities, cash flow close to 300 billion won will be generated."
He added, "Except for some facility investments, it will be used to repay more than 800 billion won in long-term borrowings, and if there are no variables, full repayment is possible in 2028–2029," and said, "Starting in the second half of next year, early repayment without fees will also be possible, so financing costs will fall sharply."