Maintain overweight: The government has announced a visa fee waiver for tourists from China in an attempt to stimulate the tourism industry. It also intends to increase the frequency and duration of mega sales and intensify domestic tourism promotions.
While waiving visas would be a more effective measure, the government also believes this could put national security at risk. Thus, a waiver of just visa fees would be a better controlled measure. Visa applicants could save an average of RM50 per application.
Unfortunately, there were no other details as to which other passport holders would benefit from the fee waiver as well.
We are also concerned that travel agents and holiday tour operators could ignore this waiver and charge their customers visa fees anyway — which would make this new measure pointless. For example, even though Thailand implemented a fee waiver for August to October 2014, a significant proportion of tour operators were still charging customers visa fees.
In October 2014, tourist arrivals in Malaysia rose 6.7% year-on-year (y-o-y), which brought year-to-date (YTD) growth (October 2014) to 9.6%. Chinese tourists were the fourth largest group of arrivals by country, contributing 1.386 million (down 2% YTD) of 22.86 million total arrivals (up 9.6% YTD).
According to Malaysia Airports Holdings Bhd (MAHB) (“buy”, target price [TP]: RM8.06), YTD arrivals up to October 2014 declined to single digits, which suggests that air travel demand from China could be picking up.
We see the visa fee waiver as mildly positive for the sector. As at the first nine months of 2014, MAHB recorded both y-o-y and YTD declines in average visitor spending, as a result of a decrease in arrivals of China tourists who are big duty free spenders.
As Chinese tourist numbers could rebound, this would bode well for the airport operator’s earnings recovery in 2015.
We expect AirAsia X Bhd (“sell”, TP: 58 sen) to benefit from the recovery in Chinese passenger arrivals, which would also benefit AirAsia Bhd (“buy”, TP: RM3.47), given the passenger feed the carrier could generate.
We maintain our “overweight” stance on the sector, with AirAsia as our top pick. Our TP of RM3.47, based on a 12 times financial year 2015 price-earnings ratio, remains unchanged. AirAsia X is still a “sell”, as its costs remain high despite the drop in jet fuel prices. — RHB Research Institute Sdn Bhd, Jan 21
This article first appeared in The Edge Financial Daily, on January 22, 2015.