The Multi-Trillion Dollar Asian Boom Hidden in Plain Sight
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The Multi-Trillion Dollar
Asian Boom
Hidden in Plain Sight
The Multi-Trillion Dollar Asian Boom
Hidden in Plain Sight
The race is on. Elsewhere, governments from Indonesia to Malaysia
Countries around Asia, including Hong Kong, are and Thailand are earmarking billions of dollars for
similar efforts to expand capacity and upgrade their
pouring billions into upgrading and expanding their
airport terminals. Again, the magnitude of capacity
airports in anticipation of a massive boom in air travel.
expansion being planned is significant, with 50% to
China has invested an estimated US$11.5 billion 100% increases being the norm.
into building the new Daxing International Airport, As we look across the Asian continent, the theme is
which is set to double the passenger flight capacity clear. Airport capacity expansion is a key priority.
for the city of Beijing. The move to expand is
aggressive, given that Beijing’s current airport, the A scale the world has not seen
Beijing Capital International Airport, is already The capacity increases in the airports above may come
ranked as the second largest in the world by across as aggressive at first glance.
passengers handled.
But the prize that the Asian governments are eyeing is
Down south, Hong Kong is looking to invest an a travel scale that the world has yet to see.
estimated HK$141.5 billion (US$18 billion) for
The travel market in Asia is huge, but it’s set to
a whole host of airport improvements, including grow even bigger. According to the World Travel
a terminal expansion, a 25-hectare Sky City and Tourism Council, the Northeast Asia travel and
development, and crucially, a third runway to tourism market, which includes China, generated
increase its flight capacity. economic activity worth US$2.1 trillion in 2018.
Meanwhile, Singapore has its own big plans. Having Southeast Asia’s market pulls in US$373 billion.
just added Terminal 4 in late 2017, the Lion City is More growth is expected, according to SATS (SGX:
looking to up the ante by adding Terminal 5, which is S58), a Singaporean airline catering firm. Asia Pacific
expected to nearly double its existing capacity from 82 is expected to add 1.8 billion travellers in the two
million to over 150 million. decades between 2014 and 2034.
2 The Motley Fool Special Report fool.hk
Rapid growth in Passenger Volumes
Growth trends of passengers volumes in key markets
Millions 1,200 China
US 220 Indonesia
1,000
Asia Pacific will grow by an extra Japan
1.8 billion passengers by 2034.
800 Brazil
600 200
Spain
Majority of the growth
comes from: 400 180 Germany
India
China: +63.7% 350 France
India: +275% 160
Indonesia: +159% 300 UK Italy
140
Intra-Asia traffic will account 250
for 62% of all traffic to, from Indonesia
and within Asia in 2034. 200 Japan 120
Brazil
150 Spain 100
Germany
100 France
Italy 80
50 2014 2034
Source: IATA; Boeing CMO 2014 2034
Source: SATS’s SGX Corporate Day presentation
More importantly, the rise in passenger volume is provides airport terminal services including
largely expected to be driven by intra-Asia travel, aviation security, baggage handling, and
which is projected to contribute 62% of the expected airfreight handling.
growth. China, India and Indonesia are expected to Aviation-related activity is vital for SATS’s business,
contribute the bulk of the increases. accounting for 86% of SATS’s total revenue in
The expected growth in the years ahead provides FY18/19. Soaring air travel passenger numbers around
fertile ground for investors to look for companies that Asia is a tailwind for the company.
may benefit from the massive expansion trend.
With that in mind, we have prepared a Special Report
Home-ground advantage
that highlights three interesting, Asia-based companies Let’s start with Singapore, SATS’s home market. The
that could benefit from the impending travel boom. company holds a dominant position in Singapore’s
Changi Airport, handling around 80% of the scheduled
SATS (SGX: S58): Connecting Asia flights out of the airport, and serving about 50 of the
scheduled 68 airlines. As mentioned earlier, there are
(and serving them meals, too) plans for Changi Airport to nearly double its passenger
Singapore-listed SATS (SGX: S58) has capacity by 2030. In FY18/19, 82% of SATS’s
straightforward purpose: “Feeding and connecting revenue came from Singapore.
Asia.”
Outside of the Lion City, SATS is also a leader.
The company fulfils its purpose through two main
In fact, the company is the largest player in the US$6
business segments:
billion Asia Pacific (APAC) in-flight catering services
• Food Solutions, which offers in-flight catering market, with an estimated share of around 12% to
for a number of airlines, as well as institutional 13% (including associates). The APAC market is more
catering services. For the fiscal year ended 31 fragmented compared to other mature markets, and
March 2019 (FY18/19), the Food Solutions SATS’s management believes that the APAC market
business contributed 54%% of SATS’ total will consolidate as airlines in the region divest their
revenue of S$1.83 billion. non-core operations. With SATS as the APAC market
• Gateway Services contributed 46% of leader, management believes that the company can
SATS’s total sales in FY18/19, and mainly play the role of consolidator.
fool.hk Special Report The Motley Fool 3
We think that consolidation will work in SATS’s Ctrip (NASDAQ: CTRP): China’s
favour, allowing the company to scale up, drive higher
productivity, and crucially, expand its APAC network. favourite online travel agent
SATS ended FY18/19 with a network of joint ventures Another travel-related stock in Asia that we’re
and associates in 60 airports across 13 countries. watching is Ctrip (NASDAQ: CTRP), which is listed
This vast network allows it to negotiate better prices in the US. It was founded in 1999 and headquartered
with suppliers and to provide end-to-end services in Shanghai, China.
to its customers. We believe that SATS can further
Today, Ctrip is one of the big players in online travel
strengthen its leading position in the APAC region if it
bookings with a portfolio of online travel brands such
manages to grow its network.
as Skyscanner, Qunar, Trip.com, and MakeMyTrip.
Cash falling from the sky com. In fact, the company is the world’s second-largest
online travel agent (OTA) after Booking Holdings
Consolidation requires cash, and that is where (NASDAQ: BKNG) in terms of gross merchandise
SATS shines, too. The company has been adept value, which measures the total value of services sold
at generating cash flow, and it ended fiscal 2019’s through a company’s platform. Within China, Ctrip
fourth quarter with S$349.9 million in cash and occupies 60% of the country’s online travel market.
just S$95.7 million in debt. The airline caterer has
earmarked S$1 billion in capital expenditure and Ctrip provides over 90 million registered members
investments for the next three years, with more than with comprehensive travel-related services
50% of the sum expected to go towards mergers including hotel reservations, flight ticketing,
and acquisitions. To support the higher investments, package tours, corporate travel management, train
SATS is expected to increase its debt. ticket, and dining reservations. The company has
five business segments:
Year SATS operating cash SATS free cash flow
flow (S$, million) (S$, million) • Accommodation reservation, which offers
FY14/15 236.4 175.1 hotel and hostel reservations for travellers
FY15/16 273.1 221.9 across different countries, promises lower
FY16/17 308.9 223.4
prices for its customers. The segment’s
revenue in 2018 was RMB 11.6 billion,
FY17/18 245.5 152.7
representing 37.2% of Ctrip’s total revenue of
FY18/19 295.7 215.1
RMB 31.1 billion for the year.
Source: S&P Global Market Intelligence
• Transportation ticketing, which offers
Please keep your seat belts fastened reservation of transportation services, including
but not limited to, major flight booking website
There are of course risks related to SATS. An
Skyscanner. Transportation ticketing revenue for
important risk is the company’s current reliance on
2018 was RMB 12.9 billion, making up 41.6%
Singapore’s status as an air-travel hub, and the status is
of the company’s total revenue.
not within SATS’s control.
• Packaged-tour, as its name suggests, offers
Customer concentration is another key risk. In
comprehensive bundled package-tour products.
FY18/19, 46% of the company’s revenue came from
The segment’s top line of RMB 3.8 billion
just one customer, Singapore Airlines (SGX: C6L).
in 2018 accounted for 12.1% of Ctrip’s total
And given SATS’s heightened focus on driving revenue during the year.
growth through acquisitions, indigestion of acquired
• Corporate travel was the smallest segment
companies is another key risk to watch.
in 2018, pulling in just RMB 981 million in
Finally, the popularity of low-cost airlines has been revenue, or 3.2% of the total pie. It provides
on the rise globally. The rise could reduce the amount travel arrangement services for corporations.
of in-flight food served, which could in turn affect
• Other businesses, where Ctrip houses its online
SATS. However, the company has been striking up
advertising services. It brought in RMB 1.8
partnerships with low-cost carriers in Asia, which
billion in revenue in 2018, or about 5.9% of the
gives us some confidence that SATS will find new
company’s total revenue during the year.
ways to serve low-cost carriers.
4 The Motley Fool Special Report fool.hk
According to McKinsey & Company, Chinese the world’s most populous continent, this is even
tourists made 131 million trips overseas in 2017 and more true. Samsonite is the world’s largest luggage
spent US$250 billion in total. McKinsey expects company and is over 100 years old, originally founded
these figures to grow to 160 million and US$315 in Denver, Colorado, in the US. However, lured by the
billion by 2020. With only 8.7% of Chinese citizens potential of the Asian travel market, it decided to list
owning a passport currently, outbound travel from its shares in Hong Kong in 2011.
China has exceptional room for growth – fitting What is perhaps less recognized is the sheer scale of
the overall trend of growth in air travel passengers Samsonite’s brands across different price points. The
from within Asia that we’ve discussed earlier in this company owns the eponymous Samsonite as well as
report – and Ctrip could benefit. American Tourister and Tumi, along with a host of
Already, Ctrip has seen robust growth. Revenue other brands including Hartmann, High Sierra, and
has increased nearly sixfold from RMB 5.4 billion Lipault. It also possesses an increasing online presence
in 2013 to RMB 31.0 billion in 2018, according to via its bags retailer, eBags.
S&P Global Market Intelligence. Over the same The company generated net sales of US$3.8 billion
period, free cash flow was positive in all but one in 2018 and breaks down its business into four key
year, and it jumped by more than 250% from RMB areas/brands:
1.8 billion to RMB 6.4 billion.
• Samsonite – Its eponymous label has been
There are, of course, risks related to Ctrip: a recognisable brand for all travellers and is
• Although Ctrip has managed to produce a strong by far the largest contributor to its top line,
stream of free cash flow, we’re watching the generating a total net sales amount of US$1.7
company’s profit. Operating income has been billion in 2018. It can be seen as a mid- to
erratic, coming in negative in 2014 and 2016, high-end brand.
according to S&P Global Market Intelligence. • Tumi – This brand sits within the higher/luxury
• The Chinese government has cracked down end of Samsonite’s overall portfolio and was in
on the company’s practice of automatically fact an acquisition (Samsonite bought Tumi for
opting customers in to high-margin options US$1.8 billion in 2016). It has already started to
– which it dubs “value-added services” such contribute meaningfully to Samsonite’s overall
as expensive travel insurance. Travellers business with US$762.1 million in net sales in
may also see such practices as being in direct 2018 – an increase of 12.4% compared to 2017
contrast to Ctrip’s stated “customer-centric” (in constant currency terms).
approach. Meanwhile, much of the recent • American Tourister – This is Samsonite’s mass-
decline in Ctrip’s profit margins can be market brand, with affordable price points to
blamed on the change in its approach to match. It contributed US$667.8 million to total
value-added services. net sales in 2018. This was the fastest-growing
• Another line to watch is Ctrip’s shares portion of the business (net sales in percentage
outstanding, which have almost doubled terms) in 2018, up 16.5% year-on-year.
between 2014 and 2018. Historically, the • Others – This includes the rest of Samsonite’s
company has used its shares as a currency to portfolio, where brands such as Speck,
fund acquisitions, and we should expect this Hartmann, High Sierra and eBags reside.
practice to continue into the future. Overall, it generated US$654.5 million in net
sales in 2018, up 11.9% over the previous year.
Samsonite (SEHK: 1910):
Packing for Asia’s Travel Growth Online presence
One travel-related stock in Asia that will likely benefit What’s been more impressive is that Samsonite has
from this tourism boom is Hong Kong-listed luggage been actively building up its online presence and going
maker Samsonite International SA (SEHK: 1910). direct to the consumer. Although it has wholesale and
direct-to-consumer channels, the former still made up
Anyone in the world who has ever travelled abroad
nearly two-thirds of its total net sales in 2018.
has most likely used a Samsonite product. And on
fool.hk Special Report The Motley Fool 5
However this is changing as Samsonite bulks up its e-commerce presence. This is already starting to have an impact. Direct-to- consumer net sales increased from 33.4% of net sales in 2017 to 35.9% in 2018. Set for growth With a forecast two-thirds of the global middle class set to reside in Asia by 2030, Samsonite is one company that could benefit hugely from the megatrend in tourism. The potential numbers speak for themselves, with China leading the way – around 25 million Chinese tourists travelled to ASEAN in 2018 alone, never mind the rest of the world. As long as there’s a desire globally to travel, Samsonite’s products will be in demand. With contributions from Johnny Chan and Tim Phillips Disclosure: Motley Fool analysts Ser Jing Chong and Hui Chin Leong own shares in SATS Ltd. 6 The Motley Fool Special Report fool.hk
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