Tourism

Tourism 

 

In the gloom of concerns about the snail’s pace recovery of Thai consumption and exports, tourism has been shining, lit up by a steadily growing influx of international tourist arrivals despite the fact that 2Q is generally low season. Unfortunately, recent concerns about MERS epidemic are dimming the light. At the same time, with no cases in Thailand and no evidence MERS is spreading through a community, in our view the impact from MERS on Thai tourism will be less than SARS in 2003. We continue to be positive on Thai tourism. Our top buys are AOT, ERW and AAV. 

 

Less severe than SARS. The epidemic of Middle East Respiratory Syndrome (MERS) has raised concerns about Thai tourism. MERS is currently found in 20 countries, with the two latest fatalities reported in South Korea. In Thailand, the Ministry of Public Health (MOPH) has affirmed that no one in Thailand has been diagnosed with MERS.  

 

These fears are a throwback to the severe acute respiratory syndrome (SARS) epidemic in 2003, when Thai tourism was hit hard, slashing international arrivals for five months in a row (Figure 1). However, our study suggests the impact on Thai tourism from MERS will be less severe than SARD. We based this on the following factors.  

 

1) The spread of MERS has not triggered travel restrictions as outlined by World Health Organization (WHO) standards, as MERS has spread only from those affected to others coming in close contact – such as the caregivers or family. There is no evidence of sustained spread through a community. 

 

2) Despite higher mortality rate for MERS at ~40% compared with ~10% for SARS, the disease is spreading slower: since April 2012 or 38 months after MERS emerged, WHO has been notified of 1,166 infected persons globally with 436 related deaths. This has thus not elicited the same sense of urgency. SARS, according to WHO data, affected a total of 8,098 worldwide in the period November 2002 - July 2003, or only nine months, with 774 deaths.  

 

Accelerating growth of arrivals despite low season. In April, AOT’s international passenger pass-through grew 21% YoY and preliminary data for May 1-23 suggests this is continuing, with rapid growth of 26% YoY for international passengers. Despite the fact that April and May are traditionally the lowest for Thai tourism, YoY growth is accelerating from the 21% in 1Q15, upheld by growing Thai tourism and May 2014’s low base (martial law). Notably, the numbers of international passengers are higher than the levels at same period in 2013 which was the strong year of Thai tourism before the political meltdown. This is confirmation of our view of secular trend of Thai tourism. 

 

Top buys: AOT, ERW and AAV. We like AOT, as strong passenger growth even in the low season will be a catalyst for share price. Of hoteliers, ERW is a laggard play despite being a prime beneficiary from the recovery of Thai tourism because of its higher earnings exposure to the hotel business compared to CENTEL and MINT (Figure 4). We like AAV for its strong earnings bounce to record highs this year, and the extension of the indefinite reprieve for six Thai-registered airlines to operate flights to Japan (after it ended in May) is positive news to the airline sector.