Yesterday,  the  Government  announced  a  visa  fee  waiver  for  Chinese visitors,  which  we  view  as mildly  positive  to  stimulate  tourist  arrivals. We are also concerned that this waiver could be disregarded by travel agents/holiday  tour  providers.  Maintain  OVERWEIGHT  on  the  sector, with AirAsia still as our Top Pick with an unchanged MYR3.47 TP (12x FY15 P/E). AirAsia X remains a SELL, due to its high costs. 
 
Revised budget features fee waiver for tourists. The Government has announced  a  visa  fee  waiver  for  tourists  from  China  in  an  attempt  to stimulate the tourism industry. It also intends to increase the  frequency and duration of mega sales and intensify domestic tourism promotions.

A  positive  move.  While  waiving  visas  would  be  a  more  effective measure, the Government also  believes this could put national security at risk. Thus, a waiver of just visa fees would be a measure that is better controlled. Visa applicants could potentially save an average of MYR50 per  application.  Unfortunately,  there  were  no  other  details  as  to  which other passport holders would benefit from the fee waiver as well. We are also  concerned  that  travel  agents  and  holiday  tour  operators  could ignore this waiver and charge their customers visa fees anyway – which would  make  this  new  measure  pointless.  For  example,  even  though Thailand  implemented  a  fee  waiver  in  Aug-Oct  2014,  a  significant proportion of tour operators were still charging customers visa fees.  

Oct  2014  YTD  tourist  numbers.  In  Oct  2014  (click  here  for  report), tourist  arrivals  to  Malaysia  rose  6.7%  YoY,  which  brought  YTD  growth  (Oct 2014) to 9.6%. Chinese tourists made up the fourth highest arrivals by  country,  contributing  1.386m  (-2%  YTD)  of  22.86m  total  arrivals (+9.6% YTD). According to Malaysia Airports (MAHB) (MAHB MK, BUY, MYR8.06),  the  YTD  drop  in  arrivals  up  to  Oct  2014  declined  to  single digits, which suggests that air travel demand from China could be picking up.  

Mildly  positive.  We  see  the  visa  fee  waiver  as  mildly  positive  for  the sector.  As  of  9M14,  MAHB  recorded  both  YoY  and  YTD  declines  in average  visitor  spending,  as  a  result  of  a  decrease  in  China  tourist arrivals,  who  are  big  duty  free  spenders.  As  Chinese  tourist  numbers could  rebound,  this  would  bode  well  for  its  earnings  recovery  in  2015. We expect AirAsia X (AAX MK, SELL, TP: MYR0.58) to benefit from the recovery in Chinese passenger arrivals, which would also benefit AirAsia (AIRA  MK,  BUY,  TP:  MYR3.47),  given  the  passenger  feed  the  carrier could generate.  

Still  OVERWEIGHT.  We  maintain  our  OVERWEIGHT  stance  on  the sector,  with  AirAsia  as  our  Top  Pick.  Our  TP  of  MYR3.47,  based  on  a 12x FY15 P/E, remains unchanged. AirAsia X is still a SELL, as its costs remain high despite the drop in jet fuel prices.

Source: RHB