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Upgrade to Buy — We upgrade Kangwon Land (KWL) to Buy (from Sell) as weforecast KWL to enjoy strong earnings growth in FY18E (+22% y/y OP growth),following temporary earnings decline this year (OP growth of -18% y/y). Moreover,we find KWL now being undervalued (compared to regional peers) after KWLunderperformed KOSPI by 25% YTD. We raise our TP to W43,000 (W30,000previously) by applying FY18E EV/EBITDA of 11x.
More room to drive casino revenue next year — While our negative view on KWLuntil now has been primarily due to KWL somewhat being pressured to becomepassive in driving casino revenue this year (due to widened gap between KWL’sactual casino revenue vs. revenue cap recommended by National Gambling ControlCommission in the past several years till 2016), we think KWL will have more roomto drive casino revenue next year (after narrowed gap this year). Moreover, givenscheduled change in CEO at KWL (new CEO to be appointed in late-Dec 2017), wealso see a possibility of KWL changing its stance in driving casino revenue.
Opening of Water Park to lead to better traffic at casino from 2H18 — KWL isscheduled to open Water Park in mid-2018, which would lead to better traffic atcasino floor. After opening ski slopes in 4Q06, KWL saw strong traffic growth at itscasino floor (+34% y/y during 4Q06-3Q07 vs. -8% y/y during 4Q05-3Q06).
Decent dividend yield — We forecast KWL to raise dividend at a faster pace goingforward (driven by Korea government’s urge toward better shareholder returnpolicy) where we see decent dividend yield of 2.9% for FY17E and 3.5% for FY18E.
Attractive valuation — KWL is now trading at FY18E P/E of 16x and FY18EEV/EBITDA of 9x, at 23% discount to overseas peers’ average FY18E P/E of 21xand 23% discount to overseas peers’ average FY18E EV/EBITDA of 11x, despiteKWL’s higher dividend yield and similar earnings growth outlook in FY18E
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