Eugene Investment & Securities on the 15th said that although first-quarter results for Lotte Tour Development were somewhat disappointing, it expects the company to maintain growth from the second quarter on the back of industry tailwinds. It maintained a Buy rating and a target price of 32,000 won. Lotte Tour Development's previous closing price was 19,840 won.
Lotte Tour Development posted first-quarter revenue of 156.2 billion won, up 28.1% from a year earlier. Operating profit came in at 28.8 billion won, up 121% year over year, but missed the market consensus.
Lee Hyun-ji, an analyst at Eugene Investment & Securities, said, "In a seasonally slow quarter, February in particular saw a temporary weakness in net casino revenue," and added, "Unlike the first quarter of last year, there were no cruise sailings this first quarter, leading to weak travel revenue, while higher hotel occupancy drove up outsourced costs, increasing cost pressures and resulting in earnings that fell short of expectations."
In particular, labor costs rose from the fourth quarter of last year. As the business grew, the company added staff for the casino and hotel.
The analyst noted, "Because the first quarter is the off-season, the labor-cost ratio may appear relatively high, but starting in the second quarter, as the peak season begins, the impact should be diluted with top-line growth."
First-quarter casino revenue came to 118.6 billion won, up 40.3% from a year earlier. Although February's net casino revenue was relatively weak at 32.6 billion won, solid revenue in January and March in the 40-billion-won range offset February's weakness, according to the analysis. First-quarter casino visitors totaled about 150,000, up 37.3% year over year, and the drop amount (the money casino customers exchanged for chips to play) rose 35% to 650.5 billion won.
The analyst said, "Encouragingly, April had neither holidays nor a baccarat tournament, yet it recorded the fourth-highest net revenue ever," adding, "May should log much stronger growth than April thanks to Golden Week."
In particular, June is slated to host a baccarat tournament to mark the fifth anniversary of the Dream Tower casino, and a cruise is scheduled to sail once in the same month. With travel revenue recovering and hotel revenue expanding, total revenue should grow, and the company is expected to post quarterly operating profit of more than 50 billion won.
The analyst said, "It is somewhat disappointing that net income swung back to a loss, but we expect lower interest expenses through refinancing in the second half of this year, and, supported by favorable industry conditions, growth should continue from the second quarter."