By Joyce Lee
JEONGSEON, South Korea(Reuters) - Asia's best performing casino won't be found on Macau's Cotai Strip, Singapore's waterfront or even the shores of Manila Bay, but tucked away at the end of a winding mountain road, three hours east of Seoul.
While casinos across the region suffer from Beijing's crackdown on graft and ostentatious spending, Kangwon Land Co Ltd (KS:035250) is cashing in on its monopoly on domestic patrons, bypassing the Chinese junket operators and big spending VIPs that its rivals rely on.
Kangwon Land is the top performing casino stock in Asia over the past year, having surged 21 percent. Now valued at $7.2 billion (£5.1 billion), it trails only Sands China (HK:1928) and Galaxy Entertainment (HK:0027) in the region.
"Kangwon Land does better and better as small fry keep coming," said Kim Jung-suk, owner of the Ten Billion Pawn Shop, one of dozens of colourful pawn shops clustered outside the resort's gates. "There's no off-season."
South Korea has 17 casinos, but only Kangwon Land is allowed to admit locals, enabling steady growth despite its remote location and lack of high-rolling VIP clients, Chinese or otherwise.
With 200 tables and 1,360 slots packed tightly into an area slightly smaller than two football fields, the casino and ski resort raked in 1.63 trillion won (£949.5 million) in revenue in 2015 - nearly all from gambling. That was up 9 percent and accounted for about half of South Korea's gaming revenue.
By comparison, revenues at South Korean foreigner-only casino operators Paradise Co Ltd <034230.KQ> and Grand Korea Leisure (GKL) (KS:114090) fell 9 percent and 6.5 percent respectively, according to Reuters' calculation from company filings.
Revenues at those two companies were hit by a halt in marketing to Chinese VIPs after mainland authorities detained 13 people working for them in 2015.
At Kangwon Land, nearly all visitors are South Korean and 99 percent are non-VIPs, according to eBEST Investment & Securities. At Paradise's three casinos, Chinese VIPs made up 55 percent of betting last year.
COMPETITION - FOR SOME
Competition is poised to intensify for casinos courting Chinese visitors.
A consortium of U.S.-based Caesars Entertainment Corp (O:CZR) and Lippo Ltd <0226.HK>, and a tie-up between Paradise and Japan's Sega Sammy Holdings Inc (T:6460), are each building a casino resort in Incheon, west of Seoul. Operators for two more planned integrated resorts will be chosen on Feb. 27.
Las Vegas Sands Corp (N:LVS) said last year it would consider investing up to 5 trillion won in an integrated resort in the city of Busan - if locals are allowed to enter the casino.
But state-run Kangwon Land's monopoly on local players is due to hold until 2025 under a political concession made to the economically depressed former mining area. Analysts and industry insiders do not expect socially conservative South Korea to change its policy anytime soon.
CHINA SQUEEZE
Elsewhere in Asia, casinos rely on mainland Chinese for as much 80-90 percent of revenue in Vietnam, to roughly 20 percent in the Philippines, where operators have also outperformed Asian peers by tapping locals. Cambodia's Nagacorp Ltd <3918.HK> has also seen earnings surge thanks to demand from Vietnam and wealthy southeast Asian customers.
China's anti-graft campaign began to weigh on the gambling industry in 2014, especially in Macau, where mainland players accounted for about 70 percent of revenue. In January, Macau's gambling revenues fell for a 20th consecutive month to around five-year lows.
Shares in Macau operators including Sands China, Galaxy Entertainment, Wynn Macau (HK:1128) and MGM China Holdings Ltd (HK:2282), have lost between 28 and 57 percent in the past year.
Even with a trailing 12 month price-to-earnings ratio of 23.17, nearly double that of peers Paradise and Grand Korea Leisure, many analysts consider Kangwon Land a safe bet due to its local monopoly.
"It has very steady revenues and profits, but can't expect much growth without government approval for additional capacity," said Lee Jin-woo, fund manager at KTB Asset Management, which owns Kangwon Land shares.
"As a stock, it's like a utility."
Twelve minutes after the doors opened at Kangwon Land on a recent morning during a long holiday weekend, 2,739 people, many of them men in their late 40s and 50s, had signed up to enter.
"I come here because I enjoy baccarat," said Kim Sung-hwa, a 53-year-old woman who had arrived on a bus from Seoul. "It's either here or go abroad."