INVESTMENT HIGHLIGHTS

• The drop in FY18 cruise passenger traffic for SPCT was mainly due to the gap caused by the retirement of SuperStar Libra

• Some ports in Japan have seen decline as cruise traffic shifting towards ASEAN, potentially benefitting SPCT

• The flow of Chinese passengers to Malaysia will benefit cruise operators, especially the ones with fly-cruise options

• Number of cruise passengers to breach 2017 levels

• Earnings tweaked slightly downwards as we impute figures from the audited FY18 annual report

• Maintain BUY with an unchanged TP of RM1.39 per share

Retirement of SuperStar Libra led to a dip in cruise passengers at SPCT… Penang Port Sdn Bhd’s (PPSB) Swettenham Pier Cruise Terminal (SPCT) experienced a drop in passenger cruise in FY18 to 1.1m. Nonetheless, it has been at least six consecutive years in which the cruise passenger traffic remained above the 1m mark. The main reason for the drop in passengers at SPCT was the retirement of the SuperStar Libra in June 2018.

…but later taken over by SuperStar Gemini. There was a five month gap in the services from Star Cruises before Superstar Gemini was deployed by Genting Cruise Lines for services beginning November 2018. Penang, Port Klang, and Phuket are the homeports for its Superstar Gemini.

Shifting trend from Japan to ASEAN to benefit SPCT.

Meanwhile, the Hakata and Nagasaki Prefecture in southwestern Japan are losing their attraction as port of calls for cruise ships particularly from China as Chinese vacationers are gradually shifting towards Southeast Asia. In 2019, foreign cruise ships made only 1,913 port calls in Japan last year, marking the first decline in five years. It is possible that ships departing from Xiamen may be heading to destinations in ASEAN as the port continues to accommodate cruise ships in tandem with travel demand.

SPCT could benefit from this shift in trend. We understand that there are no cruise ships which depart from Xiamen and calls at Penang Ports so far. Nonetheless, the shift of Chinese cruise vacationers towards ASEAN could have a spill over effect on SPCT as the percentage of China tourists (including Hong Kong) out of the total number of tourists entering Malaysia has been increasing steadily from just 5.9% in 2014 to 11.4% in 2018. The number of tourists from China has also been growing at a 5-year CAGR of 12.8%.

Source: MIDF Research - 23 Apr 2019