TOURISM SECTOR - Bottoming out
(06/12/2019 - 09:30)

Hotel stocks delivered weak 3Q19 results despite the strong recovery in tourist arrivals in the quarter. However, we maintain a positive outlook premised on recovering tourist arrivals and undemanding valuation. The anticipated recovery in 4Q19 and 1Q20 would be supported by three major factors: (1) strong growth of outbound Indian tourists and recovering number of inbound Chinese tourists, (2) the long-haul market bottoming out, and (3) more balanced supply/demand dynamics in the hotel industry. Our top pick is MINT as a laggard play in the recovering tourism sector.

 

Indian and Chinese tourists will continue to drive Thai tourism industry …

GDP growth in India and China has weakened but will continue to support a rapidly-growing middle-income population. This would translate into more outbound tourism from those countries and higher tourist spending. Following the strong recovery in tourist arrivals in 3Q19, we maintain that the rising number of Indian outbound tourists and improving arrivals from China will support Thailand’s tourism industry in 4Q19-2020F.

 

…while long-haul market is bottoming out

Meanwhile, the long-haul market should bottom-out premised on the following: (i). the THB will be relatively stable against major currencies, (ii) a low-base as this market has been sluggish for 2 years, (iii) a favorable Brexit outcome could encourage higher spending by European tourists. The long-haul market generates higher spending and longer stays per head, and could lead the next recovery in RevPar.

 

Geopolitical tensions will continue to boost Thailand tourism industry in the near-term

Recovering tourist arrivals would ease the demand/supply mismatch in 4Q19 and beyond. The long-term supporting factors are a rapidly growing middle-income population in India and China driving travel demand. But there are also near-term supporting factors from short-haul markets. Recent geopolitical tensions will continue to divert tourists from conflict countries to Thailand. Indeed, we saw a surge in tourists from China, Japan, and South Korea recently (Fig.13-15).

 

Top pick in Hotel sector is MINT (TP Bt46)

While we remain positive on AOT as a prime beneficiary of recovering tourist arrivals, the recent share price rally has resulted in smaller upside to our TP relative to other Hotel stocks. Meanwhile, the anticipated return of long-haul tourists - the key feeder market for hotels - would support a sustainable recovery in RevPar.