South Korean casino stocks have plummeted following the government's announcement that operators will be required to increase their contributions to the state tourism fund. In just five days, shares of Paradise, the operator of Paradise City, dropped more than 23%. Meanwhile, Lotte Tour Development saw its stock decline nearly 5% on the morning of July 20.
The Ministry of Culture, Sports, and Tourism disclosed that it is considering raising the contribution rate for the Tourism Promotion and Development Fund from the current 10% to 15%. Analyst Choi Yong-hyun from KB Securities expressed concerns, stating, "[The rate hike] could not only worsen the performance of individual companies, but also affect the overall competitiveness of the domestic casino industry," when speaking to South Korean media outlet MTN.
This development comes as a surprise after analysts had recently forecast a boost in gambling-related stocks driven by a tourism resurgence. The stocks of South Korean casinos have experienced significant volatility, as indicated by current trends on the Korea Exchange.
Currently, the proposed fee increase would apply only to casinos that permit foreign passport holders. Of the South Korean casinos, only High1 in Gangwon Province grants entry to domestic passport holders. Kangwon Land, the operator of High1, has also felt the strain of the current market; its shares fell over 3% in the last five days, with a 1% drop recorded on Monday morning KST.
The sharpest declines have affected casino operators catering exclusively to foreign passport holders. Grand Korea Leisure, which manages the Seven Luck casino chain and is owned by the Korea Tourism Organization, saw its stock price tumble more than 11% since July 15.
Experts in the securities industry predict that if the ministry proceeds with the contribution hike, a drop in profits for these casinos is unavoidable. Analysts from Eugene Investment & Securities estimate that Paradise may have to allocate over $64 million annually from its earnings based on last year’s numbers. Similarly, Lotte Tourism Development could face a $40.5 million contribution, while Grand Korea Leisure's contribution is estimated to exceed $31 million per year.
Eugene researcher Lee Hyun-ji mentioned, "There is a possibility that casino firms’ operating profits could decrease by 20–30% compared to existing forecasts."
In addition to immediate financial concerns, analysts are also wary of the looming competition posed by Japan’s planned integrated resort in Osaka, which is set to open by 2030. Experts anticipate that this $10 billion investment could deliver approximately $2 billion annually in Earnings Before Interest, Taxes, Depreciation, and Amortization. The fear is that existing South Korean casinos might struggle to compete effectively without significant capital improvements, which could be hindered by existing construction regulations.
Choi noted, "From a mid-to-long-term perspective, South Korean foreigner-only casinos must prepare to compete with Japanese IRs in four years. And securing competitiveness is impossible without capital expenditure spending."
Despite the current downturn, analysts emphasize a generally positive outlook for South Korean casino stocks. They indicate that the recent price drops reflect market sentiment toward policy uncertainty but do not signify a fundamental decline in earnings. Spending among both VIP and regular customers remains strong at most domestic casinos, and a recovery in stock prices is expected once these policy uncertainties are clarified.
