UBS Upgrades Kangwon Land Inc: A Look at Recent Developments and Future Prospects

On Wednesday, the Swiss banking giant UBS made headlines in the financial world by upgrading Kangwon Land Inc (035250:KS) from a "Sell" rating to "Neutral," raising the price target for the company’s stock from KRW 12,000.00 to KRW 17,000.00. This shift comes amid a backdrop of improving performance for Kangwon Land, particularly in the wake of its third-quarter 2024 financial results, which are encouraging signs for investors and the gaming industry alike.

Positive Growth After a Decline

For the third quarter of 2024, Kangwon Land reported notable growth in both its drop and gross gaming revenue (GGR). After experiencing four consecutive quarters of decline in casino drop—from the third quarter of 2023 to the second quarter of 2024—this recent growth marks a significant turning point for the company. Specifically, Kangwon Land saw a 2% year-over-year growth in drop and a 1.2% rise in GGR.

The company’s strategic focus on attracting new VIP customers has been a significant driver behind this performance. Notably, Kangwon Land experienced a remarkable 30% year-over-year growth in VIP drop during this period. This indicates that the company’s efforts to enhance its VIP offerings and customer experiences are beginning to pay off. However, the mass drop segment did experience a slight contraction, reporting a 2% decrease. This decline can be attributed to a still-weak basket size among regular customers, suggesting that while the VIP market is rebounding, the general customer base still shows signs of caution.

A Forward-Looking Perspective

Despite the mixed results seen in the latest financial report, UBS has adopted a more optimistic view of Kangwon Land’s near-term prospects. The firm now projects 3.7% and 4.6% year-over-year growth in casino drop for the fourth quarter of 2024 and the full year of 2025, respectively. These forecasts are grounded in expectations that the positive momentum in VIP performance will continue into the first half of 2025. This optimism is also supported by the anticipated positive impacts of a mass floor expansion set to launch in August 2025, which could further enhance the company’s growth avenues.

Adjustment of Hold Rate Assumptions

In line with these growth projections, UBS has also revised its hold rate assumptions for Kangwon Land for the upcoming years. Increases of 80 basis points for 2024 and 30 basis points for 2025 are indicative of the improvements observed in the company’s performance and serve as another testament to the more favorable outlook UBS has adopted toward Kangwon Land’s future.

Conclusion

The recent upgrade from UBS serves as a beacon of optimism in what has been a tumultuous period for Kangwon Land Inc. With encouraging signs of growth in VIP performance and strategic expansions on the horizon, the company may be poised for a robust recovery. Investors and market watchers alike will be keen to see how the upcoming quarters unfold, especially with the ongoing efforts to attract higher-value customers and improve overall gaming experiences. As Kangwon Land navigates this transitional phase, the broader gaming industry will be closely observing its trajectories, making it an intriguing time for stakeholders engaged in the casino and entertainment sectors.

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