• Initiate with a Neutral rating; growth story already priced in We initiate coverage on Dubai Parks and Resorts (DPR) with a FV of AED1.44, which implies 10.2% downside and thus a Neutral rating. Our valuation is driven by the number of attendance for various parks and ticket prices, which would be mostly a reflection of the tourism activity in the UAE and the company’s competitive product offering in the local and regional market. Over the coming six months, we see a number of stock triggers, the most important of which being the opening of the park on time and achieving 2016 visits numbers of 1mn, which we believe investors already discount in the current market price. Moreover, the stock has a chance of being included in the MSCI EM standard index in November.
• A strong business model… The resort, scheduled to open its doors in October 2016, will initially include three theme parks, a water park, a hotel, and a retail and dining district, with plans for a fourth park (Six Flags) targeting to open in 4Q19. The park aims to be the premier year-round global entertainment destination in the Middle East catering to a wide range of visitor segments through its 110 planned ride/attractions (after Six Flags opens its doors). Business model strength, in our view, is based on experienced management, support of a strong well-established parent (Meraas), partnership with leading intellectual property (IP) partners with exclusivity rights within the region and an integrated marketing approach.
• …that caters well for potentially strong growth DPR is a direct play on the growing tourism story in the UAE, complemented by partnerships with leading IP partners worldwide, in a backdrop of limited (albeit growing) local and regional competition in theme park sector. We estimate a surge in number of attendance from 6mn in 2017e to 11.4mn in 2020, with the resort coming in the top 20 theme parks world-wide, on our numbers. We expect DPR to start delivering profits in its first full operational year (2017) and estimate revenue to grow at a 2017-21e CAGR of 18.4% and EBITDA margin to expand by 11.9pps over the same period. The company’s potential strong growth story has been reflected in the stock’s price that had outperformed the general market YTD (+50.8% vs. 11.3% for DFM).