Kiwoom Securities on the 24th reiterated its "Buy" recommendation on Lotte Tour Development (KOSPI: 032350) while lowering its 12-month target price from 28,000 won to 23,000 won. Based on the closing price of 12,750 won on 21st August, the implied upside stands at 82.1%.
Record results, punished stock
Lotte Tour Development posted consolidated revenue of 203.3bn won and operating profit of 51.9bn won for the second quarter of 2026 (April–June), representing year-on-year increases of 28.9% and 56.8% respectively — both all-time quarterly records. Operating profit met market consensus. The operating margin improved by 4.5 percentage points to 25.5%, compared with 21.0% in the same period a year earlier.
The casino division drove the outperformance. Casino revenue reached 147.1bn won, up 33.7% year-on-year, surpassing the previous record set in the fourth quarter of 2025. Visitor numbers rose 23.2% to 183,000, while the hold rate — the share of chips wagered that the house retains — climbed 2.9 percentage points to 19.3%, reflecting the continued benefit of higher table minimums and raised betting limits. The casino division's standalone operating margin jumped 5.6 percentage points from the prior quarter to 37.7%.
The hotel division generated revenue of 22.9bn won, up 4.6% year-on-year, with both occupancy (88.3%) and average daily room rate (262,000 won) rising in tandem. The travel division, which operated three cruise voyages during the quarter, posted revenue of 30.1bn won — up 25.6% and a new quarterly record.
Yet despite these results, the shares have fallen roughly 45% since the start of the year and are down 52% from their 52-week high of 26,550 won. The culprit is not operational performance but policy risk. Sentiment has been weighed down by reports that the South Korean government is considering raising the ceiling on casino operators' mandatory contributions to the Tourism Promotion Development Fund from 10% to 15% of gross revenue.
Regulatory risk looks overstated
Kiwoom Securities argues the actual financial impact is likely to be limited. Unlike the original proposal, the government appears to be moving towards a tiered structure in which the 15% rate would apply only to revenue above a specified threshold. Using a widely reported benchmark of 300bn won in annual revenue, only sales exceeding that figure would attract the higher levy. On that basis, Kiwoom estimates the impact on Lotte Tour Development's 2027 operating profit at around 18bn won — roughly 8% of its current forecast.
Even under a worst-case regulatory scenario, the stock trades at a 12-month forward price-to-earnings ratio of just 8.9 times. Kiwoom's current estimates imply a 2026 PER of 20.9 times and a 2027 PER of 8.7 times. The revised target price is derived by applying a target PER of 16.0 times — a 10% premium to the sector's target multiple of 14.5 times — to projected 2027 net profit attributable to controlling shareholders of 116.5bn won.
Operational momentum intact
Near-term trading data remain encouraging. Casino drop — the total value of chips purchased by players — came in at 263.5bn won in July, broadly flat on the prior month (–1.0%), though analysts consider this resilient given disruptions from the rainy season, a typhoon, and the football World Cup. The hold rate improved 1.3 percentage points to 19.6%, lifting July net casino revenue 5.9% month-on-month to 51.6bn won. August trends are running ahead of July.
Refinancing: the hidden catalyst
A further investment case rests on refinancing. Lotte Tour Development currently services approximately 950bn won of debt at an all-in cost of 11%. Kiwoom believes refinancing is likely to be completed by the second quarter of 2027 at the latest. Given that the company's projected interest expense for 2026 stands at 128bn won, any improvement in borrowing costs would feed directly into pre-tax and net profit. The company remains highly leveraged — total borrowings of 1.347 trillion won imply a net debt-to-equity ratio forecast to ease from 336.1% in 2025 to 246.8% in 2026 — but successful refinancing would meaningfully improve the financial structure.
Key risks to monitor
Investors must weigh two overhanging uncertainties. First, the final shape of the Tourism Promotion Development Fund levy adjustment: industry consultations with the Ministry of Culture, Sports and Tourism are continuing, and until a definitive proposal is published, uncertainty is likely to remain embedded in the share price. Second, the pace and terms of debt refinancing.
Kiwoom Securities has trimmed its target price to reflect these risks but maintains Lotte Tour Development as its top pick within the sector, on the view that both the regulatory question and the refinancing should be resolved sequentially over the coming quarters — providing a series of potential re-rating catalysts for patient investors.