■ 3Q15 net profit of S$23.6m was 5% above our estimate. 9M15 net profit formed 88% of our full-year forecast (9M typically forms 83-84%).
■ The slight beat came from higher visitation to SOA and the Singapore Flyer, partially offset by a decline in visitation at UWX.
■ We cut FY15-17 EPS by 1-9% to account for a delay in ticket price hike to FY17 (prev. 4Q15). Our DCF-based TP falls to S$1.00 as we roll over to CY16.
■ Upgrade from hold to Add on attractive valuation of 11x FY17 P/E.
Positives from SOA and Flyer partially offset by UWX
3Q15 net profit came in at S$23.6m (+21% yoy), slightly ahead of our expectations. Net profit was lifted mostly by contributions from the Flyer (acquired in Nov 2014) and better visitation at Shanghai Ocean Aquarium (SOA). This was partially offset by falling visitation at Underwater World Xiamen (UWX) due to fewer visitors to Gulangyu island where it is located. Total visitor arrivals to all of STCO’s attractions reached 2.03m (+5.1% yoy) in 3Q. Excluding the Flyer, 9M revenue would have risen by c.3% yoy.
Ticket price hike – shake it off till FY17
Given the softer economic growth in China, we expect a delay in the ticket price hike. We previously factored in a 15% ticket price hike at SOA in Nov 2015, and a 12.5% price hike at UWX in 2016. In light of recent developments, we push back our ticket price hike expectations to FY17. This results in a 9% EPS cut in FY16.
Redevelopment at the Flyer
Redevelopment plans for the retail terminal of the Flyer remain underway, with construction expected to commence in 2016. The development cost is estimated at S$20m-30m which can be funded via internal cash. As of 3Q15, STCO has net cash of S$64.0m (2Q: S$28.9m) after generating net operating cashflow of S$34.8m in 3Q.
Catalysts ahead in FY16-17
1) We expect a bottoming out of visitor arrivals at UWX, with mitigating measures put in place such as extended operating hours and completion of landscape improvement works in early 2016.
2) The opening of Shanghai Disneyland in 2H16 should bode well for visitor arrivals at SOA.
3) We anticipate a 12.5-15% ticket price hike at both SOA and UWX in FY17.
4) We also expect better rental income at the Flyer post-redevelopment, which we have yet to factor in our forecast, pending details on the redevelopment plans.
Upgrade from hold to Add on attractive valuations
STCO’s share price has fallen 19% since May, and its valuations look more palatable at 11x FY17 P/E. We upgrade from hold to Add, but with a slightly lower DCF-based target price of S$1.00 (WACC: 12%) after EPS cuts and as we roll forward to CY16. (Read Report)
Source : CIMB Research