Following Kangwon Land 2Q22 earnings report, J.P. Morgan has rated the company as “Overweight” based on the solid second quarter numbers for the period ended on Jun 30 and anticipating a turnaround by the company likely to cross pre-COVID numbers.

Kangwon Land’s second quarter numbers reflects stronger confidence that the company’s business can recover even above pre-COVID levels given how fast demand has recovered since easing of COVID-related curbs, from mid-May onwards in South Korea, the brokerage report remarked.

Based on the earnings per share estimates which are likely to shoot up 5% plus, the brokerage has raised and revised the expected old target price of Kangwon share till Dec 2022 to raise up to KWR31,000 to now KWR33,000 for December 2023 and has affirmed “Overweight” rating for the company.

Mass Gross Gaming Revenue including slot printed an impressive recovery to 90 percent plus of the pre-COVID level, despite the fact that COVID-related curbs were only fully lifted in mid-May, the brokerage report read.

“This suggests the exit rate for mass GGR was already beyond the pre-COVID level, reflecting significant pent-up demand for gaming, similar to what we saw in the other major markets such as the U.S. and Singapore,” the report remarked.

Looking at the details for the second quarter, brokerage notes the pace of recovery was much faster for drop chips buy-ins at 88 percent of the pre-COVID level against the traffic which was 74 percent of pre-COVID, indicating a meaningful uplift in spending per player – which, again, is similar to our observations in other major markets including Singapore, Macau, etc., the report read.

The J.P. Morgan report reiterates that what is encouraging for a capacity-constrained casino like Kangwon Land is where players had to wait 3-4 hours just to get a seat at a KWL casino, before COVID, which is now indicating the brokerage to project its post-COVID GGR to be higher than the pre-COVID level.

“Also note, KWL’s current gaming capacity is 20 percent plus above the 2019 level with extended operating hours of 20 hours a day versus 18 hours a day and more mass tables which is now 180 versus 160,” the report highlights.

J.P. Morgan’s thesis has been and still is based on the belief that KWL’s business could go back to pre-COVID-19 levels sometime in 2022, comfortably pushing the stock beyond the KWR31k level of the 2019 average, considering the improved regulatory environment including increased capacity and a 20-year extension of operating permit until 2045.

The brokerage also emphasizes the risks to rating and target price key downside risks including, a slower-than-expected rollout of capacity resumption; secondly an unexpected spike in COVID-19 cases in Korea; and finally the third factor a weaker-than-expected macro backdrop, which could weigh on the core casino business.