ASIATRAVEL.COM - Profitability likely to improve despite challenges (DMG)

BUY

Price S$0.325

Previous S$0.50

Target S$0.44

Asiatravel.com recorded a net loss of S$0.7m in 4QFY11, as revenue slid 3.8% YoY to S$24.6m, largely due to one-off expenses relating to the cessation of subsidiary’s business. The results were in-line with our estimates. In the absence of one-off expenses, profitability in FY12 is likely to improve, even with flat revenue growth. On top of that, there is also the full-year consolidation of FNE’s results (Asiatravel recenty increased its stake from 19.9% to 50%) for FY12. Asiatravel is an attractive partner for travel operators looking to expand into Asia, in our view, as it has a comprehensive online travel reservation platform and a wide customer base. We are estimating profit of S$0.9m for FY12. As we roll forward our valuation, our DCF-based TP is S$0.44. Maintain BUY.

Expect flat growth in volume of room nights sold. The global economic slowdown and the recent Thailand floods could negatively affect Asiatravel’s volume of room nights sold. Long-haul tourists usually select Thailand and one other Asian city as their holiday destinations. As a result of the floods, they may postpone their holiday in Asia entirely. While Singapore is on track to record 11m – 12m visitor arrivals in 2011, 2012 growth in visitor arrivals may be flat. The bright spark is that Hong Kong’s tourism industry is not experiencing a slowdown at the moment, as Chinese tourists take shorter-haul holidays and flock to nearby Hong Kong. The Hong Kong market contributes ~10% to Group revenue.

Overall ARRs may be flat too. In view of an impending dip in visitors, hotels in general have started rolling out promotional rates to draw guests. During previous economic slowdown, ARRs in Singapore dipped on average ~15% YoY, and occupancy rates were down by ~5% YoY. While Singapore now has major events and attractions (F1 GrandPrix and the IRs) to support demand for hotel rooms, ARR growth is likely to be flat in FY12.

One foot in the outbound China travel market. Asiatravel now owns 50% of FNE, a one-stop travel centre servicing the China Outbound Travel market. This allows it to expand its China network and drive more customers to its website.