Global high-end consumption is still improving and is expected to continue to grow steadily in the long term. Under the wealth effect, the income growth rate of high-income groups is better than that of other groups. In 2019-2022, the income growth rate of the 5% highest-income households in the US was significantly higher than that of 20% low-income households (3.5% vs. 1.8%), and the per capita disposable income growth rate of 20% high-income households in urban China (5.4%) was also higher than that of 20% low-income households (3.0%). Revenue is reflected at the consumer level. Against the backdrop of global economic uncertainty, the 24Q1 Hermes and Ferrari maintained a positive trend (comparable revenue growth rates of 17% and 11%, respectively), higher than LVMH (+3%), while the growth rates of Kering Group, Tapestry (Coach parent company), and Capri (MK parent company) showed negative growth; in addition, according to Hurun Baifu, the consumer price index for high-net-worth individuals was significantly higher than the overall CPI performance.
Fosun Travel & Culture is positioned as a high-end leisure resort. The average daily bed price of its product Club Med reached 1,681 yuan in 2023. The company continued to promote a high-end strategy, increasing the share of high-end & exclusive resorts, driving up the price increase, clearly surpassing 2019 (1,286 yuan). Furthermore, the tourism industry is expected to continue to transform into a leisure and vacation model, and demand for leisure, parent-child, and diversified vacation is expected to continue to inject momentum into the company's development.
The company's product model continues to be verified, and management output builds growth potential. As of 2023, the company's tourism operating revenue reached 18.1 billion yuan, up 19% year on year, up 28% from 2019; Club Med and other businesses had an adjusted EBITDA margin of 22.6% in '23, and the adjusted EBITDA margin of Atlantis Sanya was 40.8%. Furthermore, as of '23, the number of Club Med resorts reached 68, and the company's resort capacity is expected to continue to increase by 19% over '26.
The revenue & profit structure has changed significantly from '19, and the current market value is significantly undervalued. The company's revenue levels in 2023 were not much different from those in 2019, with significant changes in structure. Property sales accounted for more than 20% in 2019, while the business only accounted for 6.6% in 23; the adjusted EBITDA in '23 was 3.7 billion yuan, and property sales accounted for 0.4%, compared to 3.7 billion yuan and 26% in '19. We expect that with Club Med's upgrade and expansion in the future, the company's travel operation business will continue to grow steadily. The company's net profit for 24-26 is estimated to be 3.3/3.9/480 million yuan, respectively, and the adjusted EBITDA is 39.7/42.4/4.65 billion yuan, of which the adjusted EBITDA for tourism operations is 39.6/42.3/4.64 billion yuan. The current stock price only corresponds to 3.3X EV/EBITDA (EBITDA is adjusted), refer to comparable company multiples 13.7X average. The company's valuation is at a low level. It was covered for the first time and given a “buy” rating.
Risk warning: Consumer confidence recovery is insufficient, immigration recovery falls short of expectations, market competition intensifies risks, the real estate market continues to be sluggish, and there is a risk of information lag.