What's new

Huangshan Tourism announced the extension of its cooperation agreement with Huangshan Tunxi International Airport for one year.The firm also plans a Rmb100mn investment to launch a wholly-owned subsidiary for rural tourism business development in Huangshan City.

Comments

4Q19 visitor traffic likely lackluster. Visitor traffic to Mount Huangshan rose 9.5% YoY in 8M19 and 10% YoY in 2H18, thanks to rising demand driven by ticket price cuts in September 2018 and the opening of Hangzhou-Huangshan high-speed railway in December 2018. Data from the Huangshan statistics bureau shows that visitor traffic to Mount Huangshan rose 4.5% YoY in 10M19, implying a 9.4% YoY decline in September-October that missed our expectation. As a result, the firm’s YoY quarterly revenue growth slowed to 0.5% in 3Q19 from 6.2% in 2Q19 and 7.8% in 1Q19.

Developing tourism business in Huangshan City. In addition to the investment in rural tourism business, Huangshan Tourism in 2016 invested in Saifu Fund for possible M&A targets in the region. In 2018, the company acquired Taiping Lake project and invested in the further development of Huashan Caves.

High quality tourism asset, long-term value. Excluding cash assets and a 1.12% equity stake in HuaAn Securities, Huangshan A-shares are trading below 13x 2019e P/E. Dividend payments and share buy-backs accounted for a high proportion of profits in recent years, reaching 40% in 2016, 43% in 2017 and 38% in 2018. Therefore, we still see long-term investment value in Huangshan Tourism, and believe it is a high-quality tourism asset.

Valuation and recommendation

Due to disappointing tourism traffic, we trim 2019-20 EPS forecast 14% to Rmb0.54 and 11% to Rmb0.59, and introduce a 2021 forecast at Rmb0.66. Huangshan A-shares are trading at 16x and 14x and B-shares at 11x and 10x 2020-21e P/E. We reiterate OUTPERFORM with target price at Rmb11.35 （19x and 17x 2020-21e P/E with 22.6% upside） and US$1.16 （14x and 12x 2020-21e P/E with 25.0% upside）。

Risks

Bad weather hurting visitor traffic; external expansion disappointing.