13-Aug-2017
DXB Entertainments - 2Q17 results: number of visits positively surprise, however net yields came under pressure. Cash flow pressure remains our biggest concern
Rating: Neutral
Target Price: AED0.73
Closing Price: AED0.81
2Q17 saw a better mix in visit numbers, with higher contribution from walk-ins and online booking compared to 1Q17 numbers (with visit numbers boosted by complimentary passes, in our view). However, this failed to positively impact ticket net yields due to seasonality factors. We estimate admission revenue/cap of AED131 in 2Q17 (down from AED145 in 1Q). Management is yet to revise its full year number of visits; guiding that 4Q17 numbers would be more indicative of future operations. 2Q17 retail revenue disappointed due to rent relief given to tenants, while hotel income was resilient despite the pressure on visitation.
Our new numbers assume a change in theme park revenue mix and lower capex in ST
We maintain our number of visits throughout our forecast horizon and change the theme park revenue mix to incorporate the last two quarters’ trends. We increase the significance of non-admission revenue vs. admission revenue, which in turn resulted in lower assumed net yields on headline tickets, which we estimate at 55%, compared to management’s initial guidance of c70%. We also maintain the contribution of admission revenue of total theme park revenues at 60-65%. We forecast higher negative working capital in 2017 given the reduction in accounts payable in 1H17, which is due to payments related to capital work in progress. We have previously highlighted that working capital management is critical for the company, however, this will be more evident following the operations of tour operators, which will allow us to examine trends in receivable collection pace. We have cut our capex estimates for the year to AED480mn (down from AED980mn), in line with the slow capex pattern seen in 1H17 numbers while we maintain total capex for the Six Flags park at AED3bn and assume annual maintenance capex of AED320mn, on average, once all parks are operational.
Cash flow pressure and potentially higher leverage are our main concerns
Our main concern, especially with the accumulating net losses and negative working capital, would be cash flow constraints and hence higher leverage. Cash flow pressures would result in either another round of capital raising or increased debt position, in our view. Our model assumes additional need for financing of cAED5bn over the coming six-seven years, this is in addition to the withdrawal of the remaining AED1bn of already secured debt. We maintain our TP and Neutral rating on the stock.
Target Price: AED0.73
Closing Price: AED0.81
2Q17 results: better number of visits mix, but failed to positively impact ticket yields
2Q17 saw a better mix in visit numbers, with higher contribution from walk-ins and online booking compared to 1Q17 numbers (with visit numbers boosted by complimentary passes, in our view). However, this failed to positively impact ticket net yields due to seasonality factors. We estimate admission revenue/cap of AED131 in 2Q17 (down from AED145 in 1Q). Management is yet to revise its full year number of visits; guiding that 4Q17 numbers would be more indicative of future operations. 2Q17 retail revenue disappointed due to rent relief given to tenants, while hotel income was resilient despite the pressure on visitation.
Our new numbers assume a change in theme park revenue mix and lower capex in ST
We maintain our number of visits throughout our forecast horizon and change the theme park revenue mix to incorporate the last two quarters’ trends. We increase the significance of non-admission revenue vs. admission revenue, which in turn resulted in lower assumed net yields on headline tickets, which we estimate at 55%, compared to management’s initial guidance of c70%. We also maintain the contribution of admission revenue of total theme park revenues at 60-65%. We forecast higher negative working capital in 2017 given the reduction in accounts payable in 1H17, which is due to payments related to capital work in progress. We have previously highlighted that working capital management is critical for the company, however, this will be more evident following the operations of tour operators, which will allow us to examine trends in receivable collection pace. We have cut our capex estimates for the year to AED480mn (down from AED980mn), in line with the slow capex pattern seen in 1H17 numbers while we maintain total capex for the Six Flags park at AED3bn and assume annual maintenance capex of AED320mn, on average, once all parks are operational.
Cash flow pressure and potentially higher leverage are our main concerns
Our main concern, especially with the accumulating net losses and negative working capital, would be cash flow constraints and hence higher leverage. Cash flow pressures would result in either another round of capital raising or increased debt position, in our view. Our model assumes additional need for financing of cAED5bn over the coming six-seven years, this is in addition to the withdrawal of the remaining AED1bn of already secured debt. We maintain our TP and Neutral rating on the stock.
Mai Attia