First coverage
Investment highlights
The first coverage of Haichang Ocean Park (02255) gave it a neutral rating. The target price was HK$5.10, corresponding to 19.2 times the 2023 EV/EBITDA. The reasons are as follows:
Cultural tourism consumption has been upgraded, demand for marine theme parks is considerable, and high-quality leaders are scarce. Due to the scarcity and educational nature of marine life, high-quality marine theme parks are very attractive to tourists (especially families with children), and domestic demand potential is considerable. The entry barriers to marine theme parks are high, including scarce marine biological resources, difficult biological conservation technology, and difficult development and operation of marine theme parks.
As a leading marine theme park developer and operator in China, the company's moat is stable. As a private marine theme park developer and operator that has achieved a national layout, Haichang Ocean Park has rich marine biological resources and leading breeding technology, and has built a stable moat in the marine cultural tourism industry. At the same time, the company exports leading resources and capabilities in marine cultural tourism through the operation service and solution business of the entire industry chain. The executive team is experienced and empowered by the strategic shareholder ORIX Group.
Go lightweight, build a trifecta to establish a business ecosystem, and focus on flagship project development and profit improvement. The company's past concerns were high debt under asset-heavy model expansion projects, and operating and financial costs suppressed profit release. The company has already sold some of its park shares to MBK Fund. We believe this move is expected to greatly ease financial pressure and move into a new stage in the asset-light strategy. At the same time, we are concerned about future development space for flagship projects such as Shanghai and Sanya, profit improvements for remaining self-owned projects, large-scale implementation of a series of cultural tourism services and solutions, and the completion of IP shortfalls and the development of new retail businesses.
What's the biggest difference between us and the market? We agree that the company's transaction with MBK Fund has greatly reduced financial pressure. Flagship projects can be expected to develop and establish a three-pronged business ecosystem (park operations, cultural tourism services and solutions, IP operations and new retail), but the impact of the short-term pandemic is highly uncertain. Long-term recommendations focus on the expansion progress and implementation effects of stock project management and profit improvement, management and output business, and new IP retail.
Potential catalysts: post-pandemic recovery exceeded expectations; flagship project expansion and stock project profit improvement exceeded expectations.
Profit forecasting and valuation
We expect net loss of 323 million yuan to the mother in 2022 and net profit to the mother of 216 million yuan in 2023. We are optimistic about the development prospects of domestic marine theme parks, recognize the company's stable moat as the leading moat, and focus on the recovery of passenger flow after the epidemic, the expansion of flagship park projects, and the layout and implementation of new businesses (cultural tourism services and solutions, IP operations and new retail). We obtained a target stock price of HK$5.10 based on the segmental valuation method, corresponding to 19.2 times the company's overall EV/EBITDA in 2023, with 11% downside. It currently corresponds to 21 times the 2023 EV/EBITDA. We believe that the company's new business development expectations are basically reflected in the stock price. Future profit improvements and the effects of implementing new business formats have yet to be verified. For the first time, coverage gave a “neutral” rating.
risks
Upside risks: The COVID-19 pandemic and control trends were better than expected; flagship project expansion and other stock project profit improvements exceeded expectations; new business expansion exceeded expectations. Downside risks: The impact of the pandemic has exceeded expectations; project expansion and profit improvements have fallen short of expectations; public opinion risk of animal performance; risk of depreciation of live animal assets.