24-Jul-2017
DXB Entertainments - Expect weak 2Q17 numbers; we cut number of visits for the year
Rating: Neutral
Target Price: AED0.73
Closing Price: AED0.76
Cut our TP and maintain Neutral following stock price correction
We maintain our Neutral rating on the stock and cut our TP by 27% to AED0.73 to reflect: i) a cut in the number of visits primarily in 2017; and ii) lower capex spending to date for Six Flags; expecting the bulk of spending in 2018-19 (our estimates for capex are 13% higher than management guidance). The stock has fallen 41% YTD; we see no positive stock triggers and expect the stock to underperform this year. Although we tend to agree with management that 4Q17 will start to show some normalised numbers regarding visits and yields, which in turn might positively impact its stock performance, we believe that this will have more impact in 2018 once trends are confirmed on a quarterly basis.
Downgrade 2017 numbers again; we expect management to revise numbers
We revise our 2017 visits forecast to 1.9mn (down from 2.6mn) to incorporate: i) what we expect will be weak 2Q-3Q17 numbers given Ramadan and the summer, we forecast almost one-third of the daily number of visits seen in 1Q17 (total of 586,000 or 6,500/day) estimating 2,000 visits/day during these two quarters despite having two Eid holidays falling within the period; and ii) a relatively strong 4Q17 expected with the total number of visits of 650,000 as the park will be fully operating and tour operators’ contribution should have increased. We expect management to lower its guidance for 2017 visit numbers of 6mn, which is rather challenging, in our view. DXBE has several offers during the summer months that are valid up until the end of August (thus extending its impact to 3Q17 numbers) in an attempt to attract more visits. Although such offers might be attractive this will negatively impact net ticket yields; we estimate a net ticket price of AED191 in 2017 (vs. our previous estimate of AED195).
What does the current market price imply?
We note that the terminal value makes up our valuation; thus the high sensitivity to terminal year assumptions. The current market price and our valuation imply 10mn visits, AED290 net price ticket and an EBITDA margin of 26% as terminal year (2026) assumptions. We highlight that Six Flags (to open in 2020) should contribute c30% of total number of visits to the park. Although such assumptions are far below management numbers, however, we believe that it is justifiable given the recent opening of the park with no solid track record within the theme parks industry; an already relatively new segment in the emirate’s entertainment segment.
Target Price: AED0.73
Closing Price: AED0.76
We maintain our Neutral rating on the stock and cut our TP by 27% to AED0.73 to reflect: i) a cut in the number of visits primarily in 2017; and ii) lower capex spending to date for Six Flags; expecting the bulk of spending in 2018-19 (our estimates for capex are 13% higher than management guidance). The stock has fallen 41% YTD; we see no positive stock triggers and expect the stock to underperform this year. Although we tend to agree with management that 4Q17 will start to show some normalised numbers regarding visits and yields, which in turn might positively impact its stock performance, we believe that this will have more impact in 2018 once trends are confirmed on a quarterly basis.
Downgrade 2017 numbers again; we expect management to revise numbers
We revise our 2017 visits forecast to 1.9mn (down from 2.6mn) to incorporate: i) what we expect will be weak 2Q-3Q17 numbers given Ramadan and the summer, we forecast almost one-third of the daily number of visits seen in 1Q17 (total of 586,000 or 6,500/day) estimating 2,000 visits/day during these two quarters despite having two Eid holidays falling within the period; and ii) a relatively strong 4Q17 expected with the total number of visits of 650,000 as the park will be fully operating and tour operators’ contribution should have increased. We expect management to lower its guidance for 2017 visit numbers of 6mn, which is rather challenging, in our view. DXBE has several offers during the summer months that are valid up until the end of August (thus extending its impact to 3Q17 numbers) in an attempt to attract more visits. Although such offers might be attractive this will negatively impact net ticket yields; we estimate a net ticket price of AED191 in 2017 (vs. our previous estimate of AED195).
What does the current market price imply?
We note that the terminal value makes up our valuation; thus the high sensitivity to terminal year assumptions. The current market price and our valuation imply 10mn visits, AED290 net price ticket and an EBITDA margin of 26% as terminal year (2026) assumptions. We highlight that Six Flags (to open in 2020) should contribute c30% of total number of visits to the park. Although such assumptions are far below management numbers, however, we believe that it is justifiable given the recent opening of the park with no solid track record within the theme parks industry; an already relatively new segment in the emirate’s entertainment segment.
Mai Attia
Sara Boutros