A comment this week from SeaLink Travel Group caught my attention. CEO Jeff Ellison said SeaLink was benefiting from Chinese tourists paying up to $795 for a seat on Captain Cook Cruises, complete with a bottle of Penfold Grange wine.
SeaLink, operator of commuter ferries on Sydney Harbour, Kangaroo Island off South Australia and other interstate markets, said trading was better than expected so far this financial year. The company’s shares rose on the news.
Wealthy Chinese tourists, it seems, cannot get enough of SeaLink’s “Platinum” six-course degustation menu and the wine that accompanies it. SeaLink’s collaboration with Treasury Wine Estates, also targeting high-end Chinese consumers with Penfolds, is clever.
Chinese tourists even $395 per person, for a seat on a table of four on a Captain Cook Cruise and a front-row view of Sydney Harbour. This is big business, and yet another anecdote that reinforces why investors need exposure to the inbound-tourism megatrend.
I have written about this trend several times for The Bull in the past three years. I first identified SeaLink for The Bull readers in January 2014 when it was $1.55. It now trades at $4.29, having peaked at $4.85 earlier this year.
Chart 1: SeaLink Travel GroupSource: The Bull
SeaLink is an obvious beneficiary of Chinese tourism. Sydney is a must-see location and a harbour cruise is a must-do activity. I also identified Sydney Airport, casino operator Star Entertainment Group and hotel chain Mantra as other beneficiaries of the trend.
My thesis was based mostly on tourist volume: the sheer number of Asian tourists that will visit Australia this decade and next as middle-class incomes in emerging markets grow. I underestimated how much money some Chinese tourists are spending on their trip.
International visitors in Australia spent $38.1 billion in 2015-16, up 14 per cent on a year earlier, according to latest Tourism Research Australia data. Within that, Chinese tourist spending rose 27 per cent to $8.9 billion.
Australian property, retail, tourism and service companies are adapting to an increasingly affluent Chinese tourism market. Look at how many upmarket retailers in Sydney’s Pitt Street Mall are targeting wealthy Chinese women. Or how many retailers have signs in the window seeking sales staff who speak Mandarin.
The recent redevelopment of Chadstone Shopping Centre in Melbourne, Australia’s largest, also has it eye on Chinese tourists seeking a dose of retail therapy. On a recent visit, I was struck at how full upmarket stores were of Asian shoppers. It’s good stuff.
This trend suggests investors should look beyond companies directly leveraged to Chinese tourism, to those that benefit indirectly. OrotonGroup is an example: it looks well positioned to cater for Chinese tourists who seek upmarket Australian fashion accessories.
Oroton, a former market darling, has had its problems: the annualised five-year total return (including dividends) is -16.6%. The loss of the popular Ralph Lauren brand in 2013, challenges in its Gap stores, product discounting and general retail weakness hurt the company.
Oroton is investing in marketing that features actress Rose Byrne as its ambassador, upgrading its product range and launching a new range of jewellery, watches and perfumes. It needs to go back to its roots and take the brand to wealthy Chinese consumers.
A nascent share-price recovery is taking time as the market digests Oroton’s turnaround potential. Some heavy selling in early October, possibly a belated response to the release of its FY 2016 results in late September, stymied some much-needed share-price gains.
Oroton’s turnaround has plenty of challenges and risks. But the company has potential to catch a strong tailwind of affluent Chinese tourists who are eager to add Australian-made luxury fashion accessories to their holiday shopping list – or sell more goods directly into China.
Chart 2: OrotonGroupSource: The Bull
Myer Holdings is another retailer that should benefit from the influx of international tourists who make a beeline to popular shopping centres on their holiday. Myer’s fortunes depend on much more than tourists, and plenty of other retailers, including foreign companies that are increasingly competing in Australia, are targeting this market. But Myer looks well positioned to benefit from tourists who want to visit our largest shopping centres.
Also, the retail outlook should gradually improve in 2017. Consumer and business confidence is edging higher, home prices are still rising in Sydney and Melbourne, household wealth is increasing and interest rates are at a record low. Plenty of retail headwinds remain, but the retail outlook is okay, provided the housing market avoids a hard landing next year and unemployment does not rise significantly.
My main concern with Myer is the continued move away from department stores to speciality retailers and foreign-owned providers – a structural trend that has a long way to run. Myer still has too many stores and several are underperforming. There are better retail stocks to buy at current prices.
But keep an eye on Australian retailers that are successfully targeting Asian tourists. The willingness of Chinese holidaymakers to pay hundreds of dollars for a two-hour cruise, and their growing interest in luxury Australian items, reinforces the potential.
Tony Featherstone is a former managing editor of BRW, Shares and Personal Investor magazines. The information in this article should not be considered personal advice. The article has been prepared without taking into account your objectives, financial situation or particular needs. Before acting on the information in this article you should consider the appropriateness and accuracy of the information, with regard to your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at Oct 26, 2016.