Tourism

Tourism 

 

Except for MINT, prices of tourism-related stocks have yet to come back up to levels seen before the bomb, implying continued market concern about damage to operations. However, recovery has been rapid and the impact is less than feared. We thus expect Thai tourism to enjoy its usual high season in 4Q15. Our top picks are AOT, MINT and ERW. 

 

Bomb damage less than feared. After the bomb at Erawan Shrine on August 17, AOT’s total international passengers still grew ~12% YoY during September 1-12, slower than August’s +25% YoY. Though YoY growth looks lower, in point of fact AOT’s international passenger traffic is still above the high seen in 2013, suggesting continued tourism growth with only a short-term bump from the bomb. Operations of hotels in Bangkok are back on track. CENTEL reports ~82% occupancy at Centara Grand at CentralWorld during September 1-15, up from August’s 75%, backed by returning local events after there were no further bombs. Thus far in September, the average occupancy rate for ERW’s hotels in Bangkok is ~70%, slightly lower YoY since its two major hotels are near the area where the bomb was – Grand Hyatt Erawan and Courtyard by Marriott. The bright spot is the return of events and meetings that were postponed in 4Q15. MINT’s average occupancy rate of hotels in Bangkok in September 1-13 is at ~54%, stronger than last year. 

 

MINT impacted impact by flooding at Pattaya and Hua Hin. Of hoteliers, MINT is affected the least by the heavy rain and flooding at Pattaya and Hua Hin, the major tourist destinations. MINT has two owned hotels at Pattaya and Hua Hin but they contribute less than 2% of its total revenue. CENTEL gets ~11% of its revenue from two hotels in Pattaya and Hua Hin. ERW is likely to feel the most impact since ~18% of its revenue is from hotels those areas. The flood waters are leaving rapidly and the situation is returning to normal, according to information from the National Disaster Warning Center. 

 

No derailment of high season. The rapid response by the government and no further bombings lead us to expect Thai tourism to enjoy its usual high season in 4Q15 undergirded by China, now Thailand’s key market at 27% of total international tourist arrivals in 7M15. According to the Thai Hotel Association, hotels in tourist destinations are seeing strong forward bookings from Chinese tourists for China’s Golden Week in October 1-7. AAV reports that advance bookings for October on its China routes are as high as last year. Flights on its new route to China, U-Tapao–Nanning, will start on September 29. A further positive is reports by hoteliers that advance bookings for 4Q15 by Russians are picking up after declining since April last year. We expect a record high for international tourists at 30mn this year (+21% YoY) and 33mn in 2016 (+10% YoY). 

 

Top picks: AOT, MINT and ERW. AOT’s share price is trading at 2% below pre-bomb level and 10% below its recent peak even though the impact from the bomb is short-lived and it has strong earnings momentum in 4QFY15F at 40% YoY (seasonally down 27% QoQ) with estimated FY2016 profit growth of 17%. Despite a strong rebound at 10% above the pre-bomb level, MINT’s share price has declined by 11% over the past six months (vs. +19% for CENTEL) with positive earnings ahead in 2H15 and 2016 from an improving food business and sale of luxury villas in Phuket. Of hoteliers, ERW’s share price drop is the largest at 8% after the bomb, implying negatives are largely priced in. We see the release of weak 3Q15 performance as a good entry point for ERW to get in on the better earnings ahead from high tourism season.