Kangwon licence extension to come with tax rejig: JP Morgan

Kangwon licence extension to come with tax rejig: JP Morgan

Kangwon Land Inc could pay the equivalent of up to six percentage points extra relative to its pre-tax profit, under a proposal that would see the operator of South Korea’s only casino for locals have its gaming licence extended for 20 years, to 2045, says banking group JP Morgan.

Currently the operator’s licence is due to expire in 2025, according to the financial institution. JP Morgan queried whether the trade-off represented a “carrot and stick” approach by lawmakers.

A committee of the country’s National Assembly proposed on Tuesday that the law that allows operation of the Kangwon Land resort, which is located in an upland area outside the capital Seoul, should be amended to allow for the longer licence.

In return for the update to the Special Act on the Assistance to the Development of Abandoned Mine Areas, the operating firm would pay more tax.

JP Morgan analysts DS Kim and Derek Choi noted in a memo the same day that Korea Exchange-listed Kangwon Land Inc currently paid 25 percent of pre-tax profits to the abandoned mine fund, “on top of the usual gaming tax” at 10 percent of gross gaming revenue (GGR).

The analysts said that if passed, the revised law “would change the mining fund formula to be linked to the top line at 13 percent of GGR, regardless of profit size”.

The JP Morgan team added: “Our pro-forma analysis suggests that the new formula (13 percent of GGR) is equivalent to 30 to 31 percent of profit before tax on a like-for-like basis (versus our modelled 25 percent of profit before tax currently).”

They further observed such a change would “reduce our forward earnings per share estimates” for 2022 onward, “by about 6 percent”.

On February 15 – the same day the resort’s casino reopened after more than two months of closure as a Covid-19 countermeasure – Kangwon Land Inc reported a KRW275.86-billion (US$248.2-million) loss for 2020, compared to a profit of nearly KRW334.66 billion in 2019.

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