Hotel Shilla - Higher DFS licence fee?

5% DFS licence fee less 6.6% sales commission to the travel agencies—no new news and unrealistic Several local media including the Korea Economic Daily reported Monday that an assembly member in the opposition party has proposed a bill to ban the DFS’ sales commission paid to the travel agencies (6.6% of 2014 DFS total revenue) and instead to impose the DFS operators 5% of revenue as a licence fee.

Follow-up news on the licence fee hike
There may be some changes ahead:
(1) The assembly member’s (Mr. Hong, Jonghak) secretary commented that the licence commission increase and the sales commission cut are appropriate, but that they are aware of the pushbacks from the respective industries.
(2) The MoSF sounded more reserved, and that they will consider the industry experts’ and several experts’ opinions, including the public hearing that will take place this Thursday.
(3) According to the Maeil Business Daily, there are likely ongoing debates among the related parties. The Customs Office prefers to have large and competitive DFS players given (1) strong demand by the Chinese travellers and (2) the Korean government's will to grow the DFS industry amid intensifying competition within the region.



Regulatory risk may be a concern until details are known
Despite the suggested bill being a very unrealistic scenario, any kind of regulatory risks could weigh on the stock until further details are known, as we had seen in the previous cases. Believe that 1-2% is a more realistic scenario, which may have limited impact on the DFS’ earnings. Assuming this extreme scenario (5% fee and banning the sales commission to the travel agencies), Shilla’s OP could decline by more than 20% from current estimates.

(Source: Media reports, web articles)