Stock picks: Buy Paradise, Sell Hyundai Steel

Buy: Paradise

The operating profit of Paradise, a casino and hotel company, jumped 87.9 percent year-on-year to 21.6 billion won in the first quarter, says KB Investment & Securities.

The improved profit margin is mainly due to the increase in its “hold percentage”_ the amount the casino keeps after paying its customer ― of 14.4 percent, up from 10 percent a year ago.

KB increased its target price to 9,400 won from its original target of 7,300 won. The stock ended Friday trading at 7,160 won. It also estimates the operating profit for the second quarter to increase over five-fold, since the long holidays in Japan and China could mean 150,000 visitors from those countries during the quarter.

The securities company adds another reason for its positive outlook on the casino operator. It says that Paradise has reduced its investment for China marketing this year but is still seeing an increase of VIP customers from China.

Buy: LG International

LG International, one of the major trading and resource development companies, is making big profits out of coal production in Indonesia and China, says Korea Investment & Securities.

The brokerage house picked LG as the most promising stock among miners in Korea, citing its ownership of coal mines in Indonesia and a 30-percent stake in the China Wantugou coal mine.

The trading company started producing coal in Indonesia in February 2009. Surprisingly, Korea says that its first-quarter profit of 2011 was more than 70 percent of 2010’s annual profit. The production volume is still increasing and coal prices are increasing as well, adding another momentum to LG’s profit increase.

Korea says that if the global demand for coal maintains its current level, LG will keep enjoying a high profit margin throughout the year.

Coal currently makes up 44 percent of LG’s exploration and production business, surpassing its crude oil business, which accounted for 24 percent.

Sell: Hyundai Steel

Korea Investment & Securities removed Hyundai Steel from its recommendation list, warning that holding onto the stocks would bring more losses to investors. It says the stagnant construction market has reduced the demand of steel in Korea.

To make things worse, the steel maker is having trouble in export, too, as global demand for steel hasn’t recovered fully, the report said. On the supply side, the import of cheap Chinese steel and excessive investment on building new steel mills by domestic firms are pushing the price even lower. Hyundai steel recently reduced production by 10 percent. Overseas sales account 10 percent of its revenue.

Yet, Meritz Securities says the business environment will improve from the third quarter as China is expected to end its tight-money policy and Japan may see an increase in steel consumption for restoration projects after the March earthquake and tsunami.