Tourism Sector

Tourism Sector

- Political situation escalates as protesters clash with police officers
Political situation in Thailand heated up during the weekend (30 November
– 1 December) after the People's Democratic Reform Committee (PDRC)
upgraded its rally. Protesters moved to seized more government offices
until there were clashes between the police officers, while the fight
between the red-shirt protesters and Ramkhamhaeng University students
left 5 killed and 53 injured.
- Tourism severely affected as high season has approached
The ongoing political unrest is considered as a significant negative
sentiment toward the tourism and hotel industries during the high season.
32 foreign embassies, including Singapore, Japan, China, South Korea, UK,
Netherland, India, Israel, and Slovak, issued notices warning their citizen
to avoid traveling to Thailand. The current warnings are at level 2 and 3
and might be upgraded, with more embassies join, if the situation turns
more violent and more people get killed or injured. However, if the
problem and escalation can stop and reasonable explanation about the
situation is given to local and foreign tourists for their understanding, the
negative impact would last only in the short term and be limited only in
Bangkok, which would take around two to three months to regain tourists’
confidence about security. However, in the worst case scenario that the
problem is prolonged, the tourism industry might fail to meet its goal in
2014 which expects the number of foreign tourists to increase from 25.5-
26 million projected this year to 28 million. We will closely monitor the
situation and assess the impact on the Thai tourism continuously.
- Negative sentiment. Downgrade to UNDERWEIGHT. Avoid hotel stocks
The aforementioned negative factors would put pressure on the movement
of stocks in the tourism and hotel sector and make them less attractive for
investment despite the high season. Accordingly, we downgrade our
recommendation from NEUTRAL to UNDERWEIGHT and recommend
staying away from stocks in the sector in the short term. Of three
hotel stocks under our study, MINT would get the least impact from the
situation, thanks to its diversified business structure and because the
income from its hotels in Bangkok makes up less than 10% of its total
operating income. CENTEL’s 55% income comes from the food business,
while the hotel business comprises 15-16% of its total income. ERW
depends mostly on the hotel business at 90% and its hotels in Bangkok
accounts for 60-70% of its total income, so it would get the greatest effect.