Cover Story: Tourism-related stocks in focus

This article first appeared in The Edge Malaysia Weekly, on January 20, 2020 - January 26, 2020.
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WITH tourist arrivals projected to reach 30 million in conjunction with Visit Malaysia Year 2020 (VMY2020), we take a look at a few tourism-related stocks that could be in focus during the year.

 

Malaysia Airports Holdings Bhd

Between January and December 2019, MAHB’s network of 39 Malaysian airports handled 105.2 million passengers, 6.1% more than the 99.1 million passengers handled in the same period in 2018.

Three days before the start of the new year, MAHB opened its newly expanded immigration arrival area at klia2, just in time to welcome tourist arrivals in conjunction with VMY2020.

This much larger area can accommodate about 1,000 people at any one time compared with fewer than 500 before, and will also prevent the immigration queue from spilling over into the corridor that is connected to the arrival gates, especially during the peak periods.

In a note dated Dec 13, 2019, RHB Research says it expects strong earnings growth of 13% for MAHB in FY2020, supported by passenger volume growth of an estimated 5% and a turnaround at the Istanbul Sabiha Gokcen International Airport.

The research house has a “buy” call on the stock with a target price of RM9.25, or an upside of 31% to its closing price of RM7.09 last Friday.

 

AirAsia Group Bhd

Asia’s largest low-cost carrier (LCC) by passengers carried, AirAsia Group Bhd posted a capacity growth of 17% year on year in 3Q2019. Demand held strong as passengers carried during the quarter grew 20% year on year to 13 million, resulting in a two percentage point increase in its load factor to 84%.

Meanwhile, its local operation, AirAsia Malaysia, increased its capacity by 10% year on year and carried 11% more passengers during the quarter.

MIDF Research sees an increase in the amount of jet fuel consumed by AirAsia this year, premised on the possibility that the airline may add capacity and routes in conjunction with VMY2020.

In a Jan 7 note, the research house says it expects passenger growth in Malaysia to remain intact in spite of the implementation of a departure levy that took effect in September last year because the levy is still lower than many in the region, including those of Thailand and Hong Kong.

It adds that for LCCs such as AirAsia, the departure levy makes up an immaterial 1.6% on average of normal fares.

MIDF has a “buy” call on the counter and a target price of RM2.04, indicating an upside of 24% to its closing price of RM1.65 last Friday.

 

Genting Malaysia Bhd

VMY2020 could work in favour of Genting Malaysia and the group’s Genting Integrated Tourism Plan — a 10-year master plan to reinvigorate and transform Resorts World Genting that kicked off in 2013. However, there have been delays in major portions of the plan, including the outdoor theme park that is now slated to open in the second half of the year.

In its latest quarterly financial report, Genting Malaysia says the ongoing development of its outdoor theme park is progressing well and the group remains focused on its timely completion.

Last year, Genting Malaysia reached a settlement agreement with Fox Entertainment Group LLC, The Walt Disney Company and other parties over Fox’s termination of its participation in the outdoor theme park because Disney did not want to be associated with the gaming business.

As part of settlement terms, Genting Malaysia will be given a licence to use certain Fox intellectual properties for the theme park.

In any event, UOB Kay Hian says VMY2020 initiatives, including tourist visa exemption for China tourists, will help increase patronage of Genting Highlands. In a Jan 8 note, the research house says the visa exemption is expected to boost the mass market gaming segment, which recorded a mid-single digit gross gaming revenue drop in the first nine months of 2019.

UOB has a “buy” call on Genting Malaysia with a target price of RM3.78, or an upside of 13% to its closing price of RM3.36 last Friday.

 

YTL Hospitality REIT

The REIT is a potential beneficiary of VMY2020 because of its prime hotel properties and the anticipated increase in tourist numbers.

In Malaysia, the REIT’s hospitality assets include the JW Marriott Hotel, The Majestic Hotel and The Ritz-Carlton in Kuala Lumpur, the Pangkor Laut Resort in Pulau Pangkor and the Tanjong Jara Resort in Terengganu.

In a note dated Dec 31, 2019, Affin Hwang Capital says it continues to like YTL Hospitality REIT’s master leases, which account for 60% of its FY2020 estimated net property income. To recap, the master lease agreements with the lessees, which are mainly affiliated companies of YTL Corp, have long contracts and stable rental income with a 5% step-up provision every five years.

The research house has a “buy” call on the REIT with a target price of RM1.46, indicating an upside of 7% to its closing price of RM1.36 last Friday.

 

KLCCP Stapled Group

KLCCP is seen as a key player in VMY2020, thanks to its prime assets such as luxury hotel the Mandarin Oriental, which is located next to the iconic Petronas Twin Towers and the Suria KLCC shopping mall.

In a report dated Nov 12, 2019, RHB Research maintains its “buy” call on the stock, stating that the reconfiguration of 12% of Suria KLCC’s net lettable area will propel the REIT’s earnings in FY2020.

The research house has a “buy” call on KLCCP with a target price of RM8.62, which represents an upside of 9% to its closing price of RM7.89 last Friday.

Other stocks that could be in focus in VMY2020 include Sunway Bhd, which operates Sunway Lagoon — the fourth most visited water theme park in Asia-Pacific in 2018, and Shangri-la Hotels Malaysia Bhd, which owns and operates the Shangri-La Hotel in Kuala Lumpur, Shangri-La Rasa Ria Resort & Spa, Shangri-La Rasa Sayang Resort & Spa, Golden Sands Resort and Hotel Jen Penang.

Sim Leisure Group Ltd, which is listed on Singapore’s Catalist, has also been making waves with its Escape outdoor theme park in Penang. Holding the Guinness World Record for the longest tube water slide in the world at 1,111m, it is voted the top theme park in Malaysia on TripAdvisor.com.

 

 

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