2018 results slightly miss expectation
2018 revenue decreased 8% to HK$4,518mn. Core profit fell 38% toHK$683mn, slightly lower than our expectation of HK$701mn.
Revenue fell mainly because of declining real estate projects sales,and core profit fell mainly due to one-off gains （selling the Golf Club）in 2017, excluding which, core operating profit climbed from roughlyHK$550mn to HK$683mn in 2018. The company proposed no finaldividend, implying a full-year payout ratio at about 24%.
Tourist attraction business: Theme parks maintained steadygrowth with revenue up 7% and profit up 4%. Natural scenicspots reported a 46% decrease in profit mainly due toenvironmental regulations and D&A charges at Shapotou, andpreliminary expenses at Huashan Scenic Spot. Leisure resortsturned a loss into profit mainly because increasing losses atZhuhai OSR were offset by profit recognition at Evergrande OSR.
Other business: Travel agency, hotel and transportationbusinesses developed steadily and recorded 5%, 4% and 4%revenue growth. Profit in the travel agency business rose 28% onincreasing volume in travel document operations.
Trends to watch
Watch for efficiency improvement and new projects in touristattraction business. Product innovation and upgrades, and industrialchain extension will be implemented at theme parks and naturalscenic spots to boost revenue and profit. The company will advancedevelopment of its land reserve for Zhuhai OSR and Anji. Also, weexpect it to develop new businesses and create new growth engines,such as the recently announced investment in Detian Tourism Project.
Earnings forecast
Considering lower-than-expected 2018 earnings, we trim 2019 and2020 core profit forecasts 4% and 5% to HK$764mn and HK$839mn.
Valuation and recommendation
The stock is trading at 14x 2020e P/E. We maintain BUY but cut ourtarget price 11% to HK$2.77 mainly due to earnings revisions,implying 18x 2020e P/E and 28% upside.
Risks
Slow progress in asset disposals; uncertainty over profitabilityimprovement in leisure vacation projects