20170109-三星证券-All-round_solid_4Q16_performance_expected_15页_485kb

Sector Update Summary: Leisure (OVERWEIGHT)

Core Content

This report provides an analysis of the Korean leisure sector, with a focus on the performance and future outlook of key companies, including Grand Korea Leisure (GKL), Paradise, Kangwon Land, Hana Tour Service, Mode Tour Network, and Hotel Shilla. The report highlights the sector's mixed performance in the fourth quarter of 2016 (4Q16), with some companies showing strong results and others facing challenges.

Main Points

GKL (Grand Korea Leisure)

• 4Q16 Performance: Expected to post robust results, with sales of KRW149.4b and operating profit of KRW37.4b, exceeding consensus forecasts by 18%.
• Hold Ratio and Visitor Inflows: Maintained a strong hold ratio, supported by inflows of Japanese VIPs and mass visitors.
• Cost Management: Anticipated a reduction in marketing costs, with a marketing cost-to-sales ratio falling from 20.6% in 2016 to 18.2% in 2017.
• Guidance: Released 2017 guidance of KRW547.8b in sales and KRW145.5b in operating profit, aligning with end-2016 estimates.
• Valuation: Target price of KRW27,000 (33.7%), with a P/E ratio of 12.7x in 2017 and EV/EBITDA of 4.6x.
• Outlook: Expected to outperform sector peers due to its strong mass-visitor portion and absence of recognizing KRW4b in employee welfare fund contributions.

Paradise

• 4Q16 Performance: Consolidated operating profit of KRW11.7b, below consensus estimates of KRW16b-17b, missing by 27%.
• Costs: Incurred significant one-off costs in 4Q15 and 3Q16, which negatively impacted results.
• Guidance: Full-year consolidated operating profit expected at KRW77.9b, 23% higher than consensus.
• Valuation: Target price of KRW20,000 (54.4%), with a P/E ratio of 18.4x in 2017 and EV/EBITDA of 15.7x.
• Outlook: EBITDA margin guidance of 25% seems low, and earnings improvements are expected in 2H17.

Kangwon Land

• 4Q16 Performance: Sales of KRW415.3b and operating profit of KRW121b, slightly below consensus.
• Performance Factors: Declines in VIP sales due to a drop in hold ratio and slowing growth in general tables and slot machines.
• Valuation: Target price of KRW45,000 (24.8%), trading at 14.3x P/E, significantly undervalued compared to global peers.
• Outlook: Expected to rebound in 2017 with the Winter Olympics in Feb 2018, new water theme park, and a new CEO.

Hana Tour Service

• 4Q16 Performance: Expected to report operating profit of KRW40b, missing consensus estimates by 61%.
• Challenges: Affected by deferred demand from MERS, delayed winter break, and increased TV ad costs.
• Valuation: Target price of KRW80,000 (20.3%), with a P/E ratio of 24.7x in 2017.
• Outlook: Likely to depend on narrowing DFS operating loss and quadrupling DFS sales to meet 2017 guidance, but this seems unlikely.

Mode Tour Network

• 4Q16 Performance: Expected to report operating profit of KRW3.7b, missing consensus by 20%.
• Improvement: Anticipated rebound in 1Q17 with increased package tour sales and ASPs, outperforming Hana Tour Service.
• Valuation: Target price of KRW36,000 (23.1%), with a P/E ratio of 19.5x in 2017.
• Outlook: Expected to outpace consensus forecasts in 1Q17, with parent-based sales growth at 14% y-y compared to Hana's 8%.

Hotel Shilla

• 4Q16 Performance: Consolidated sales of KRW876b and operating profit of KRW20.2b, meeting consensus forecasts.
• Parent-Based Performance: Parent-based operating profit of KRW27.9b, flat q-q.
• Valuation: Target price of KRW60,000 (23.6%), with a P/E ratio of 36.8x in 2017.
• Outlook: Industry consolidation is expected to benefit its share price, with new DFS licenses and potential gains from the exit of existing operators.

Key Information

• Industry Trends: The travel sector faced challenges due to deferred demand from MERS and other factors, while cinema players saw rebound in demand.
• Cost Management: GKL and Paradise are focusing on reducing marketing and other costs to improve profitability.
• Valuation Concerns: Several companies are currently undervalued relative to global peers, suggesting potential for price appreciation.
• Future Outlook: Positive outlook for 2017, driven by events like the Winter Olympics, new theme parks, and new leadership, with some companies expected to outperform sector expectations.

Summary Table of Key Companies

Conclusion

The leisure sector in South Korea is showing mixed results in 4Q16, with some companies like GKL and Mode Tour Network demonstrating resilience and potential for growth, while others like Paradise and Hana Tour Service are facing challenges. The report recommends accumulating shares in companies that are undervalued and have positive outlooks, particularly in the first quarter of 2017, as they are expected to see improved performance due to various factors including cost management, new events, and market conditions.