- The Covid-19 lockdown is easing in several Asia-Pacific countries
- A sharp rebound should be expected for the travel and hospitality sector
- We identify Minor International, Wynn Macau Ltd, Village Roadshow and Shangri-La Hotels as potential recovery stories
Covid-19 lockdowns are easing in a number of countries in the Asia-Pacific, raising the compelling prospect of rebounds for the ravaged travel, tourism and retail sectors, which have declined by as much as 71% in some cases. By way of comparison, the end of SARS saw a vigorous bounce-back for all these sectors.
Asian consumer sector: Bearing the brunt
The Covid-19 pandemic has decimated the Asian travel, tourism, gaming and hospitality sectors. Airlines have ground to a halt, hotels are empty and amusement parks remain shut. However, the loosening of restrictions (see below) would be a godsend for these businesses. These companies fall into three categories; those that suffer from the curse of no inventory, those with high leverage and those with high fixed costs.
- Companies with no inventory, such as hotels (Minor International – MINT TB; Shangri-La – 69 HK) and cinemas (Village Roadshow – VRL AU), are vulnerable. A hotel has a finite number of room days. If they don’t function for a month, then those room days are gone forever. There is no way that they can sell them, even at a discount.
- Companies with an operational crisis (high fixed costs) could suffer. Village Roadshow is an Australian cinema and theme park operator that fits the bill. It operates the Golden Village chain of cinemas, as well as theme parks like Warner Bros and Sea World in Australia. The fantasy theme parks are currently in a nightmarish situation – Village Roadshow has halted operations with the Australian lockdown.
- A third category of companies that have suffered in the current crisis are those that have exploded their balance sheets. Minor International PCL is one of the biggest hotel operators in Thailand, with more than 12,800 rooms under brands such as Four Seasons, St. Regis and Marriott. The stock is down 51% YTD. MINT TB’s difficulty is that it had nearly doubled its net gearing just before the Covid-19 outbreak – in December 2018, MINT TB acquired Spanish hotel operator NH Hotels Group for US$2.5bn by raising debt.
The APAC countries are starting to ease lockdowns
Such companies stand to benefit from the (cautious) lifting of restrictions:
- In Thailand, two provinces – Nonthaburi and Udon Thani – are loosening partial lockdowns after a recent decline in the rate of new infections. Thailand otherwise remains in a state of emergency.
- Similarly, Australia and New Zealand are also loosening their lockdown restrictions. Australia's most populous state, New South Wales, has allowed residents to visit its famous beaches, with surfers spotted in Sydney's iconic Bondi Beach just yesterday. Some social distancing measures remain in place.
- Vietnam has begun lifting some restrictions on movement. Vietnam has recorded fewer than 300 coronavirus cases and no deaths and has been hailed for its effective handling of the crisis.
- Hong Kong, Asia's financial centre, has seen a sharp drop in its infections and the civil service will resume work from 4 May. The social distancing measures may be lifted soon after.
- Strict restrictions still remain in place in Singapore, Indonesia and Malaysia, and in the Indian subcontinent.
Four stocks that could bounce back
We have identified four key stocks in Asia-Pacific that have been severely punished in the Covid-19 carnage (Figure 1), but could recover strongly as lockdowns are lifted – Minor International, Wynn Macau Ltd, Village Roadshow and Shangri-La Hotels.
Figure 1: The hit taken by our four stocks during the Covid-19 period
Source: Bloomberg, Tellimer Research
Two of those four stocks rose extravagantly in the three-month period after the peak of the SARS crisis in 2003 (Figure 2) and all four are currently trading at least one standard deviation from their 10 year average PB ratio. We see great potential for them recovering strongly after the lockdowns ease.
Figure 2: Comparison with the 2003 rebound
Source: Bloomberg, Tellimer Research
|Company||Shangri-La Hotels||Wynn Macau Ltd||Minor International||Village Roadshow|
|Ticker||69 HK||1128 HK||MINT TB||VRL AU|
|Description||Shangri-La owns and operates a chain of luxury hotels in Asia. It is controlled by the Kuok family.||Wynn Macau Ltd owns Wynn Macau, one of the largest destination casino resorts.||Minor is one of the biggest hotel operators in the region. It has 12,800 rooms and has just acquired NH Hotels in Europe.||Village operates cinemas and theme parks such as Warner Bros in Australia and in the region.|
|Net gearing (%)||76||30||115||51|
|Dividend yield (%)||1.3||3.3||2.4||3.6|
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