20151201-大华继显-东瀛游-06882.HK-A_Winner_Of_Yen_Depreciation_13页_432kb

EGL Holdings (6882 HK) Summary

Core Content

EGL Holdings is a leading travel and tour company in Hong Kong and Macau, providing package tours, FIT products, and ancillary services. The company has benefited significantly from the depreciation of the Japanese yen and its competitive advantage in organizing Japan-bound package tours.

Main Points

• Company Background: Founded in 1987 and listed on the HKEx in November 2014, EGL has a strong presence in the outbound travel market in Hong Kong. In 2013, it ranked third in outbound travel with a 9.3% market share.
• Market Share in Japan-bound Tours: In 2013, EGL held a 31.6% market share in terms of revenue for Japan-bound package tours, the highest among its peers.
• Competitive Advantage: EGL operates its own land operator in Japan, allowing it to achieve a higher gross margin (around 10% higher than other destinations). It is expanding this model to Korea and plans to replicate it in other countries to improve margins further.
• Yen Depreciation Impact: The yen depreciation since 2013 increased the number of Hong Kong travelers to Japan from 31,237 per month in January 2013 to 141,500 per month in August 2015. This led to a significant jump in EGL's net profit, up 165% yoy in 1H15.
• Experienced Management: The management team has over 30 years of experience in the tourism industry. The company has weathered major crises such as the Asian financial crisis, SARS, the global financial crisis, and the 3/11 Japan earthquake, maintaining its market share.
• Business Diversification: In addition to traditional package tours, EGL offers themed tours such as gourmet, sports-event, and wedding tours, which have higher gross margins. The company is also setting up an overseas wedding specialty shop in Central.
• Financial Health: As of June 30, 2015, EGL has a substantial cash reserve of HK$522 million with no borrowings, indicating a strong financial position. The company has a healthy net margin and ROE.
• Valuation: EGL is currently trading at a historical PE of 18.5x (12-month trailing basis), which is lower than its peer Travel Expert (1235 HK) at 10.6x. The company has a dividend payout ratio of 50% and an expected dividend yield of around 7%.
• Growth Drivers: The continued depreciation of the yen and the rising disposable income in China are expected to drive further growth in EGL's business. However, there are risks associated with natural disasters, economic downturns, yen appreciation, and failure to expand into the Chinese market.

Key Financials (Year to 31 Dec)

Risks

• Natural disasters and terrorist attacks.
• Adverse economic downturn in Hong Kong.
• Appreciation of the Japanese yen, which may reduce demand for travel to Japan.
• Failure to successfully expand into the Chinese market.

Investment Highlights

• Yen Depreciation: Continued depreciation of the yen is expected to sustain demand for travel to Japan, benefiting EGL's business.
• Themed Tours: EGL's themed tours have higher gross margins than traditional tours, providing a growth opportunity.
• Expansion Plans: EGL is setting up land operators in Korea and plans to expand to other destinations, which could further improve its gross margins.
• Market Position: The company has maintained a strong market position in Hong Kong, even during economic downturns, due to its experienced management and strong brand reputation in Japan.

Valuation Comparison

Key Metrics (Year to 31 Dec)

Conclusion

EGL Holdings has a strong competitive position in the Japan-bound package tour market, supported by its own land operator model and the depreciation of the yen. The company's experienced management and financial stability make it a resilient player in the travel industry. While it faces risks such as yen appreciation and economic downturns, its expansion into themed tours and the Chinese market presents growth opportunities. The current valuation suggests a reasonable investment opportunity, with potential for further profit growth.