Equity Analysis /
Sri Lanka

Sri Lanka: Leisure Sector - Significant room for upside from a low base

  • Lifting of outbound travel restrictions in China will be a significant catalyst for tourism in Maldives and Sri Lanka

  • Strong Maldives arrivals in July and August bodes well for leisure firms with MV exposure

  • Strong exposure to Maldives gives AHUN and KHL an advantage over its local leisure peers

Asia Securities
15 September 2022
Published byAsia Securities
  • In line with our Sri Lankan tourism sector view published last year, local players namely AHUN and KHL saw a faster recovery compared to local peers due to their strong exposure in Maldives.

  • We continue to maintain our BUY ratings on AHUN and KHL due to the following reasons:

    1) Occupancy levels in Maldives resorts are tracking above expectations heading into the winter season. AHUN and KHL are well positioned to benefit given their strong exposure to the country.

    2) Removal of Sri Lanka from several travel advisory lists and an uptick in forward bookings signals a gradual normalisation of demand going into the key winter holiday season in 2022.

    3) China has been a key source market of tourists for both Maldives and Sri Lanka pre-pandemic and the possible lifting of travel restrictions in the country could prove to be a significant upside catalyst for the tourism sector in Maldives and Sri Lanka.

  • With the Sri Lankan tourism sector recovery still gathering pace, and Maldives demand tracking strongly, we believe current price levels offer investors attractive long-term entry points to the stock:

  • ·AHUN – We rate the stock a BUY with a TP of LKR 92.00/share, deriving a return of 42.0%

  • KHL – We rate the stock a BUY with a TP of LKR 26.00/share, deriving a return of 42.9%

Key risks:

  • Significant economic recession globally impacting travel demand during the winter season.

  • Spread of a new or emerging COVID-19 strain worldwide could have a drastic impact on travel.