Carnival Group | 996.HK

Carnival Group | 996.HK
A leisure and entertainment complex developer
New integrated tourist destination in Qingdao coming soon
Rio Carnival (Qingdao) project, which is 64% owned by Carnival
Group, is located in Huangdao district of Qingdao, with an site area
of ~350,000 sqm. The project mainly consists of theme park, outlet
mall, hotels and residential properties, and is scheduled to
commence operations by mid-2015.
Limited competition in Qingdao theme park market
Designed by international renowned Sanderson, Rio Carnival
(Qingdao) would offer a wide range of entertainment, which included
water park, thrill park, ice skating rink, 4D cinema and ferris wheel.
While Qingdao is a popular tourist destination with ~62mn visitors in
2013, we noted that there are only a few theme parks (one of them is
operated by Haichang (2255 hk)). Haichang's marine theme park in
Qingdao recorded ~2.5mn visitors with a per head spending of
~RMB100 (mainly ticket fee) in 2013.
Outlet mall would be another major recurring revenue generator
Rio Carnival (Qingdao) Outlet Mall planned to include 150-180
discount stores directly operated by international premium brand
owners, such as Gucci, YSL, Burberry, Ferragamo, Armani and
Valentino. The gross sales proceeds of top 10 outlet malls in the
PRC ranged between RMB1.1bn and RMB4.0bn in 2014. Besides,
the Company has contracted Langham Hospitality Group to operate
and manage its two hotels with a total of 738 rooms.
Potential M&A to expand its footprint in tourism market
The Company intended to acquire E-Da World, an integrated
tourism project in Taiwan opened in 2011 with >10mn visitors in
2013. Its business model is similar to that of Rio Carnival (Qingdao).
In 2013, E-Da Theme Park generated ~NT$1bn revenue, while its
outlet mall achieved a gross sales amount of ~NT$3.7bn, according
to management.
Besides, Carnival Group also plans to acquire 70% interest in
Berjaya China. Berjaya China is developing another leisure and
entertainment complex in Sanhe City of Hebei province, which is
~30km from Beijing Capital International Airport. Phase 1 of this
project is scheduled to open by the end of 2015.
Residential property project to bring additional revenue
Existing residential projects of Carnival Group included 1) Rio
Carnival (Qingdao)'s residential area, 2) Carnival International
Community in Chengdu, and 3) Glory Palace in Beijing. For Rio
Carnival (Qingdao)'s residential properties, most of the construction
work of is completed, the unsold portion is expected to bring in
~RMB4.0bn revenue during 2016-2018.
Carnival International Community in Chengdu is a mixed-use
commercial and residential property project. Management expect
most construction and outright sales of this project to be completed
in 2015-2016. On the other hand, Glory Palace in Beijing is a low
density premium detached villa project, which achieved a historical
ASP of RMB42,000 per sqm. Unsold GFA of this project is ~68,000
sqm, which is expected to be sold during 2015-2017.
Page 1 of 15
Rating
NOT RATED
Current price
HK$1.25
Company Report
18 Feb 2015
Cinda International Research
Trading data
52-Week Range (HK$)
3 Mth Avg Daily Vol (m)
No of Shares (m)
Market Cap (HK$m)
Major Shareholders (%)
Auditors
Result Due
0.38/1.42
13.2
13779
17,224
Mr. King Pak Fu
(75.38%)
HLB
FY14: Mar
Company description
Since its backdoor listing in 2011, Carnival Group
is transforming from a property investor to an
one-stop leisure and entertainment project
developer. The Company's flagship project, Rio
Carnival (Qingdao), is scheduled to commence
operations by mid-2015. Besides, the Company
also has 99.01% and 26% effective interest in two
residential property projects, which are located in
Chengdu and Beijing respectively.
Price chart
New integrated tourist destination in Qingdao coming soon
Since its backdoor listing in 2011, Carnival Group is transforming from a property
investor to an one-stop leisure and entertainment project developer. The Company's
flagship project, Rio Carnival (Qingdao), is scheduled to commence operations by
mid-2015. The Company owns 64% interest in this project. Besides, Carnival Group has
99.01% and 26% effective interest in two residential property projects, which are located
in Chengdu and Beijing respectively.
Exhibit 1: Business scope of Carnival Group
Source: The Company
Exhibit 2: Key corporate milestones
Source: The Company
Page 2 of 15
Flagship leisure and entertainment project would commerce operations by
mid-2015
Rio Carnival (Qingdao) is located at Phoenix Island tourist resort (鳳凰島旅遊度假區),
Huangdao district (黃島區), Qingdao, Shangdong Province. With an aggregate site area
of ~350,000 sqm, Carnival Group aims to develop Rio Carnival (Qingdao) into an
one-stop leisure and entertainment destination, which mainly consists of theme park,
outlet mall and hotels. The Company also allocated a portion of the land for residential
properties, so that it could get back a portion of its investment by selling the residential
areas.
Exhibit 3: The overall design of Rio Carnival (Qingdao)
Source: The Company
Exhibit 4: Project progress in late 2014
Source: The Company
Page 3 of 15
Exhibit 5: Major components of Rio Carnival (Qingdao)
Major components of Rio
Carnival (Qingdao) project
Land area
(sqm)
Planned GFA
(sqm)
Brief descriptions
Theme park
72,000
60,000
Designed capacity of ~3mn visitors annually with >50 facilities and points of
activities
Outlet mall
89,000
130,500
A "direct-operate" discount center of international premium brands, integrated
with entertainment and dining facilities including cinema, indoor ice skating rink
and restaurant street
Hotels
63,000
200,000
Two hotels with a total of 738 rooms, incorporated with conventional centre
facilities
Residential properties
126,000
350,000
A high end residential project, ~89,000 sqm of GFA has been pre-sold
350,000
740,500
Source: The Company
Appointed international renowned Sanderson as overall designer
Carnival Group appointed Sanderson as the overall designer for Rio Carnival (Qingdao).
Sanderson is an Australian design house which has collaborated with various renowned
projects including Universal Studio in Singapore, Warner Bros Movie World in Germany
and Sea World in Australia.
Comprehensive range of entertainment facilities
With ocean exploration as the main theme, Rio Carnival (Qingdao) would offer a wide
range of entertaining experience to visitors, which included indoor and outdoor water
park, thrill park, ice skating rink, 4D cinema, electronic games parlor, career experience
centre for kids, ferris wheel as well as performance square.
Exhibit 6: Some of the planned entertainment facilities in Rio Carnival (Qingdao)
Source: The Company
Page 4 of 15
Different market position in comparison to existing theme parks in Qingdao
While Qingdao is one of the most popular tourist destination in the PRC with ~62mn
visitors in 2013, we noted that most tourist destinations in Qingdao are sightseeing
spots. According to the ranking by Ctrip.com, there are only two marine theme parks
(one of them is operated by Haichang (2255 hk)) and one amusement park among the
top 50 tourist spots. With a more comprehensive portfolio of entertainment facilities and
a modern outlook, Rio Carnival (Qingdao) has a different market position and could
become one of the most popular spots for tourists.
Exhibit 7: Existing theme parks in Qingdao
Source: Ctrip.com
Haichang's marine theme park in Qingdao recorded ~2.5mn visitors in 2013
Haichang's marine theme park in Qingdao recorded ~2.5mn visitors with a per head
spending of ~RMB100 (mainly ticket fee) in 2013. With more value-added facilities in
Rio Carnival (Qingdao) (such as ice skating rink, cinema and ferris wheel), its
entertainment project could achieve a per head spending of ~RMB200, in our view. If it
could attract similar number of visitors as Haichang's marine theme park, its
entertainment segment would generate ~RMB500mn revenue annually.
Page 5 of 15
Outlet mall would be another major recurring revenue generator
With the theme park and other entertainment elements to attract traffic, the outlet mall is
expected to be another major recurring revenue contributor of Rio Carnival (Qingdao).
The outlet mall planned to include 150-180 discount stores directly operated by
international premium brand owners. According to management, many international
brands have shown their interests to open a store in the outlet mall, including Gucci,
YSL, Burberry, Ferragamo, Armani and Valentino.
The gross sales proceeds of top 10 outlet malls in the PRC ranged between RMB1.1bn
and RMB4.0bn in 2014, according to Outletscn.com. It should be noted that in
comparison to traditional outlet malls, Carnival Group's project is positioned as an
entertainment and leisure complex, hence Rio Carnival (Qingdao)'s outlet mall could
potentially outperform its peers. Given the Company aims to cooperate with premium
international brands which generally have a strong bargaining power, we believe the
outlet mall is likely to have an average concessionaire rate of 12-13%.
Exhibit 8: Outlook of Rio Carnival (Qingdao)'s outlet mall
Source: The Company
Two hotels managed by Langham Hospitality Group
In addition to theme park and shopping mall, the hotel operation would also generate
recurring income for the Company. It contracted Langham Hospitality Group to operate
and manage the two hotels with a total of 738 rooms in Rio Carnival (Qingdao).
Exhibit 9: One luxury hotel and one family-orientated hotel in Rio Carnival (Qingdao)
Source: The Company
Page 6 of 15
Experienced management team to support the project development
While Rio Carnival (Qingdao) is only the first leisure and entertainment project of
Carnival Group, the Company has recruited a experienced management team to
support the development of Rio Carnival (Qingdao) and other projects in the future. For
instance, Ms. Mara Wang was responsible for the development and management of
E-Da Outlet Mall and Taipei 101 before she joined Carnival Group, and Mr. Jindong Du
has acted as the general manager of Haichang's marine theme park. On the other hand,
Mr.Eric Leung, CEO of Carnival Group as well as the former deputy managing director
of China Gas (384 hk), is responsible to monitor the overall development of the
Company.
Exhibit 10: Management portfolio of Carnival Group
Source: The Company
Page 7 of 15
Potential M&A to expand its footprint in tourism market
Intended to acquire E-Da World, an integrated tourism project in Taiwan
According to Carnival Group's announcements on 3 Jul 2014 and 27 Jan 2015, the
Company has entered into a non-legally binding letter of intent with E United Group. E
United Group s is one of the leading conglomerates in Taiwan, it owns and operates
E-Da World, an integrated theme park, hotel and outlet shopping mall facilities in
Kaohsiung of Taiwan.
Carnival Group intended to 1) acquire 81% equity interest of E-Da Development Corp.
(which currently owns E-Da Theme Park and E-Da Outlet Mall) at approximately
NT$4,737mn, 2) acquire 40% equity interest of E-Da Skylark Hotel at a consideration to
be determined by the parties, and 3) acquire 19% interests of E-Da Royal Hotel at
approximately NT$503mn. 70% and 30% of the consideration for the above acquisitions
shall be settled by cash and issuance of a 3-year convertible notes of the Company
respectively. Upon competition of the acquisitions, Carnival Group shall further
contribute a total of US$22.1mn capital for the projects.
Leading leisure destinations with >10mn visitors in 2013
Commenced operations in 2010, E-Da World's business model is similar to Rio Carnival
(Qingdao), offering the visitors an integrated leisure and entertainment experience with
theme park, outlet mall and hotels. The World Travel Award in 2011 awarded it as
Taiwan’s Leading City Resort and Taiwan’s Leading Conference Hotel. E-Da World
attracted >10mn visitors in 2013.
Exhibit 11: Outlook of E-Da World
Source: E-Da World
Page 8 of 15
E-Da Theme Park generated ~NT$1bn (~HK$250mn) revenue in 2013
E-Da Theme Park is the only Greek Aegean Sea Style theme park in Taiwan with a total
GFA of ~65,000 sqm. Its scope of entertainment facilities is similar to Rio Carnival
(Qingdao) Theme Park, which included amusement park, water park, 4D cinema,
haunted house, 3D art museum and theater. Carnival Group's management suggest
that E-Da Theme Park generated ~NT$1bn revenue (~HK$250mn) in 2013.
Exhibit 12: Some of the entertainment facilities in E-Da Theme Park
Source: E-Da World
Aim to upgrade the brand mix in E-Da Outlet Mall
With a total GFA of ~185,000 sqm, E-Da Outlet Mall achieved a gross sales amount of
~NT$3.7bn (~HK$930mn) in 2013, according to management. In addition to renowned
international brands such as Armani, Burberry, Cerruti 1881, Hugo Boss, Coach and
Swarovski, the outlet mall also consists quite a number of mid to mass market brands
including Esprit, Nine West, Bauhaus, Giordano as well as some domestic Taiwan
brands. Currently, most visitors of E-Da World are Taiwanese. Carnival Group plans to
attract more tourists from mainland China to visit E-Da World, as these visitors would
have a stronger purchasing power, the Company could then introduce more premium
brands into the outlet mall.
Potential further cooperation with E United Group
Upon completion of the transaction, E United Group would purchase 2% equity interest
of Carnival Group in order to strengthen the strategic cooperative relationship. Besides,
Carnival Group and E United Group intend to establish a 60:40 JV company to
participate in the development of similar integrated theme park, hotel and shopping mall
projects in the PRC.
Page 9 of 15
Another proposed acquisition project in Hebei, ~30km from Beijing
The Company also entered into an non-binding MOU with the subsidiaries and the
controlling shareholder of Berjaya Corporation (BC.MK) for the acquisition of 70% equity
interest in Berjaya (China) Great Mall Co., Ltd. ("Berjaya China"). Berjaya Corporation is
one of the largest conglomerates in Malaysia with investment in various sectors
including hospitality, F&B, property, financial services, gaming and lottery management.
The consideration for the above proposed acquisition is subject to further negotiations.
Berjaya China is principally involved in the development and construction of an
integrated commercial project similar to Rio Carnival (Qingdao) and E-Da World within
the Yanjiao National High-Tech Industrial Development Area in Sanhe City, Hebei
province. The location is ~30km from central Beijing and Beijing Capital International
Airport respectively. Leverage on the geographic location, Carnival Group views this
project as a platform to capture the opportunities in Northern China. Phase 1 of this
project would be opened by the end of 2015.
Exhibit 13: Existing and potential projects of Carnival Group
Source: The Company
Page 10 of 15
Residential property project to bring additional revenue
Sales of residential properties to support tourism projects development
With a plan to further expand its tourism project portfolio, outright sales of residential
properties should help to fund the future development of Carnival Group. Residential
projects on hand included 1) Rio Carnival (Qingdao) International Community, 2)
Carnival International Community, Chengdu, and 3) Glory Palace, Beijing.
Exhibit 14: Residential property project of Carnival Group
Project
Interests
Project type
GFA (sqm)
Progress of the project
Rio Carnival (Qingdao)
International Community
64%
High-rise and low-rise
apartments, villas
350,000
~89,000 sqm has been pre-sold, most of the construction work
is completed
Carnival International
Community, Chengdu
99.01%
Mixed-use high-end
commercial and
residential property
507,000
Completed major construction of Phase I in Dec 2012, ~58,000
sqm has been pre-sold, plan to sell all residential high-rise
units and lofts by 2016
Glory Palace, Beijing
26%
Riverside high-end
residential detached
villas
122,000
Of the planned 200 units, 69 units have been sold, 31 units
have been completed and remain unsold, expect construction
of project to be completed in 2015
Source: The Company
Rio Carnival (Qingdao) residential area is expected to generate ~RMB4.0bn
revenue to the Company
According to Fang.com, the historical ASP of Rio Carnival (Qingdao)'s residential
properties was at RMB15,000 per sqm. Assuming a flat ASP, the remaining ~245,000
sqm of residential area could bring in ~RMB3.7bn revenue to the Company. Besides,
the project also consists of ~16,000 sqm of villa, which is expected to achieve an ASP of
>RMB20,000 per sqm, based on the historical transaction price of comparable villa
project in Qingdao. Management stated that while most of the construction work is
completed, Carnival Group would progressively launch the remaining residential
properties in 2015-2018, in order to capture the appreciation opportunity after the
tourism and commercial complex commence operations.
Exhibit 15: Rio Carnival (Qingdao) residential project recorded an ASP of RMB15,000
Source: fang.com
Page 11 of 15
Chengdu and Beijing projects to bring additional sales in the future
On the other hand, Carnival International Community, Chengdu included both
commercial and residential areas. Among the remaining ~449,000 sqm unsold GFA,
~140,000 sqm is residential areas, with an historical ASP of RMB7,800 per sqm.
Carnival Group also plans to sell ~160,000 sqm of the commercial areas (including
shops and office), management expect the ASP for the commercial areas would be at
RMB10,000-13,000 per sqm. Hence the Chengdu project could potential generate
RMB2.6-3.2bn revenue. Most of the construction work and outright sales of the
Chengdu project would be completed in 2015-2016, according to management.
Carnival International owns a minority interests of 26% in Glory Palace, Beijing. This
project is designed as a low density premium detached villa project, hence it achieved
an ASP of RMB42,000 per sqm. Unsold GFA of this project is about 68,000 sqm, which
translate to a potential revenue of ~RMB2.8bn in the future. The remaining units are
expected to be sold during 2015-2017.
Exhibit 16: ASP of Carnival International Community, Chengdu and Glory Palace, Beijing
Source: fang.com
Page 12 of 15
Financial review
Turned profitable in FY14E
Carnival Group was loss making in FY11-13, as the Company was in a transition stage
and its flagship project, Rio Carnival (Qingdao), has yet to commence operations. The
Company issued a positive profit alert on 27 Jan 2015, expressed that it is expected to
record >HK$200mn gross profit (versus a gross loss of HK$1,051mn in FY13) and a net
profit in FY14E (versus a net loss of HK$1,811mn in FY13), we believe it is mainly
attributed to an increase in presidential properties sales.
E-Da World's experience demonstrated that Rio Carnival (Qingdao) could be a
successful business model
We expect that the profitability of Carnival Group would further improve after Rio
Carnival (Qingdao) commence operation in mid-2015. While Rio Carnival (Qingdao) is
positioned as a tourism and commercial complex , which is a brand-new business model
in the PRC, making it difficult to estimate its popularity and sales performance at this
moment. However, E-Da World in Taiwan, with a business model comparable to Rio
Carnival (Qingdao), is quite successful in attracting traffic with >10mn visitors in 2013.
We also note that the preferred shopping experience in the PRC has gone through an
upgrading trend, which transited from street stores to department stores, and then from
department stores to shopping malls. Hence, Rio Carnival (Qingdao), which offered a
one-stop leisure and entertainment experience to the visitors, could potentially be the
next rising star in the PRC market.
Exhibit 17: Income statement
Year to Dec (HKD mn)
FY11
FY12
FY13
Revenue
COGS
(13)
0
(18)
0
545
(1,596)
Gross Profit
SG&A
Other gains or losses
Share of gain/losses of an associate
(13)
(96)
5
0
(18)
(215)
1
0
(1,051)
(222)
1
0
0
(112)
(5)
0
119
(72)
1
(2)
(104)
(2)
0
0
0
0
51
0
(232)
4
0
0
(200)
196
0
0
(1,272)
(68)
(56)
(544)
(5)
0
0
0
(117)
0
0
0
0
0
0
0
47
0
0
0
0
0
0
4
EBIT
Net finance costs
Income tax credit / (expenses)
Non-controlling interests
Profit/(loss) from discontinued operations
(55)
(6)
(0)
0
(8)
(232)
(152)
23
44
9
(1,944)
(190)
323
326
0
(117)
(95)
15
31
0
51
(35)
44
(51)
0
Net profit attributable to shareholders
(70)
(308)
(1,486)
(165)
9
Operating profit
Fair value change on investment properties
Impairment loss recognised for PPE
Impairment loss recognised for goodwill
Loss on early redemption on promissory notes
Gain on disposal of subsidiaries
Reversal of impairment loss of other receivables
Other one-off gain/losses
Source: Bloomberg, CIRL
Page 13 of 15
1H13
0
0
1H14
860
(741)
Exhibit 18: Balance sheet
Year to Dec (HKD mn)
Non-current assets
PPE
Investment properties
Prepayments on construction contracts
Goodwill
Interests in an associate
Current assets
Properties for sale
Trade receivables
Prepayments, deposits and other receivables
Held for trading investments
held for sale assets
Cash & equiv
Current liabilities
Trade payables
Deposits from sale of properties
Accrued liabilities and other payables
Amounts due to non-controlling interests
Amounts due to related companies
Taxation payable
Liabilities associated with HFS assets
Borrowings
Non-current liabilities
Borrowings
Deferred tax liabilities
Amounts due to non-controlling interests
Convertible notes
Promissory notes
Capital and reserves
Share capital
Share premium and reserves
Non-controlling interests
FY11
FY12
FY13
1H13
1H14
2,163
3,071
367
521
0
3,217
2,794
0
526
0
3,766
3,219
0
0
0
3,395
2,911
0
537
0
4,324
3,233
0
0
102
6,121
6,538
6,985
6,844
7,659
4,379
32
353
86
573
1,286
5,469
0
781
55
0
353
5,995
11
1,279
0
0
495
6,147
0
1,650
45
0
472
4,778
11
1,807
0
0
2,195
6,708
6,658
7,779
8,315
8,791
37
1,617
494
51
0
24
210
0
134
1,521
557
174
0
0
0
1,236
1,503
1,258
538
169
67
0
0
698
190
1,558
671
178
0
0
0
708
1,303
438
577
233
86
0
0
204
2,433
3,623
4,231
3,304
2,842
881
2,013
122
694
840
675
2,042
0
997
173
2,917
1,669
0
126
144
2,883
2,066
0
1,082
186
6,005
1,613
0
137
154
4,550
3,887
4,856
6,216
7,909
879
2,506
2,462
879
2,371
2,436
2,583
909
2,185
879
2,303
2,456
2,583
895
2,220
5,847
5,686
5,677
5,638
5,699
Source: Bloomberg, CIRL
Page 14 of 15
Rating Policy
Stock Rating
Sector Rating
Rating
Definition
Buy
Outperform HSI by 15%
Neutral
Between -15% ~ 15% of the HSI
Sell
Underperform HSI by -15%
Accumulate
Outperform HSI by 10%
Neutral
Between -10% ~ 10% of the HSI
Reduce
Underperform HSI by -10%
Analysts List
Antony Cheng
Research Director
(852) 2235 7127
[email protected]
Hayman Chiu
Senior Research Analyst
(852) 2235 7677
[email protected]
Kenneth Li
Senior Research Analyst
(852) 2235 7619
[email protected]
Lewis Pang
Senior Research Analyst
(852) 2235 7847
[email protected]
Johnny Yum
Research Assistant
(852) 2235 7617
[email protected]
Analyst Certification
I hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject
company or companies and its or their securities. I also certify that no part of my compensation was / were, is / are or
will be directly or indirectly, related to the specific recommendations or views expressed in this report / note.
Disclaimer
This report has been prepared by the Cinda International Research Limited. Although the information and opinions
contained in this report have been compiled or arrived at from sources believed to be reliable, Cinda International
cannot and does not warrant the accuracy or completeness of any such information and analysis. The report should not
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