Tourism

Tourism  

 

What’s new? Hong Kong Health Authorities on Monday issued a travel alert against South Korea in response to the rising risk of an outbreak of Middle East Respiratory Syndrome (MERS). On Tuesday, in response to the rising numbers of MERS patients in South Korea, China's Macao Special Administrative Region raised the response level for MERS from "Alert" to "High Alert" (third on the list of four warning levels in Macao, below "Serious" and "Emergency"). The Health Bureau advised citizens not to travel to South Korea temporarily. As of June 9, 95 infected persons are infected in South Korea with 7 deaths. Globally, the World Health Organization has been notified of 1,244 infected persons with 446 deaths. 

Comment:  

South Korea contributes just 5% of Thai tourists. The outbreak is admittedly a risk for the tourism industry. At the same time, we view that the MERS outbreak in South Korea will not cut inbound arrivals drastically since South Korea accounts for ~5% of Thailand’s total international tourist arrivals. In our view, the impact from MERS will be far less severe than the SARS epidemic in 2003, when arrivals were slashed by 5-49% YoY in March–July 2003. This is partially because Thailand’s tourism picture has strengthened, with a larger tourist base 

(900K tourists per month in 2002 vs. 2mn in 2014) but also because there is no evidence of a rapid and sustained spread of MERS (See our June 4 report: MERS not severe as SARS). 

 

Thailand still has no reported infections and AOT is working closely with the Bureau of General Communicable Diseases to monitor passengers coming into Thailand’s international airports from the Middle East and South Korea, including setting up temperature monitoring stations at its airports. 

Insignificant impact on Thai tourism plays. In view of South Korea’s small contribution to Thai tourism, we believe the impact on Thai tourism plays will be negligible. This includes the airport operator (AOT), hoteliers (CENTEL, ERW and MINT) and airline operators (AAV, NOK and THAI). AAV and NOK have no scheduled flights to South Korea; THAI has five daily flights to Seoul and one daily flight to Busan, together supplying ~3% of THAI’s revenues. 

 

Top buys: AOT, ERW and AAV. Despite a 10% share price increase YTD, we maintain our positive view on AOT, as it is positioned as a good, safe play on the Thai tourism sector, backed by strong passenger growth and healthy earnings. ERW is attractive as a price laggard 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. AAV’s share price has plummeted by 21% from its recent peak in March pressured by the industry-wide concern on the downgrade of Thailand’s safety standards by the International Civil Aviation Organization (ICAO) (its assessment to be announced in June 18), despite the fact that it is impacted very little and expects operational recovery with record-high earnings this year.  

 

Risk: Faster spread of the disease inside South Korea and throughout the region that raises concerns and consequently tourist decisions to call off their travels.