Key points

• International visitors to Australia increased by 8% to a record 6.4 million in 2014 and Chinese visitors have risen by almost 21% this calendar year alone.
• Sydney Airport has a fabulous monopoly asset for at least another eight years, before the first stage of Sydney’s second airport at Badgerys Creek is completed.
• SeaLink Travel Group is among the higher-quality small-cap companies and a beneficiary of Asian tourism, given its operations focus on Sydney Harbour.

In North Queensland’s Airlie Beach, a Chinese consortium plans a $300 million Chinatown development in the middle of the tourist hotspot. If approved, it could be the first step in a $5 billion investment that includes a Buddhist temple, large resort and airport upgrade.

Airlie Beach is better known for backpackers and young families, not massive Chinese developments in the main street that bring an influx of Asian tourists.

Either way, the Whitsundays town is undergoing an eye-catching renaissance.

This anecdote is a small slice of what’s ahead as the coming boom in Asian middle-class consumption sparks the next great megatrend: global travel. As incomes rise, millions of emerging-market consumers will travel overseas for the first time.

That will bring huge growth in Asian investment in tourism projects. As Airlie Beach attracts Chinese interest, Australian councils are targeting foreign direct investment to develop tourism and other projects. Just as Asian companies bought or invested in Australian resource or agribusiness companies to secure supply, so, too, will they invest in our tourism.

Like the best megatrends, tourism is the confluence of several forces: rising consumption in Asia, urbanisation, an ageing global population, and technology and its ability to lower travel costs. It’s a great trend, and the good news for investors looking to buy in is that it’s only just starting.

Australian stocks well placed

Long-term, Australian tourism will benefit from new growth in Chinese tourism, then Indian tourism and later from South-East Asia countries. It’s a remarkable opportunity for our economy, tourism sector and companies that are leveraged to this trend.

International visitors to Australia increased by 8% to a record 6.4 million in 2014, Tourism Australia data shows. Fourteen of Australia’s top 20 tourism markets reported record arrivals and Asian markets delivered an 11% increase in visitors and total trip spend.

Chinese visitors have risen by almost 21% this calendar year alone, and arrivals from India jumped by 23% in the year to June.

Growth in inbound and outbound Asian tourism is driving an investment boom. Proposed investment in the Australian tourism pipeline grew by 9% to $53.7 billion in 2014, Tourism Research Australia (TRA) data shows. Another 71 projects entered the tourism investment pipeline in 2014, which TRA said showed “strong investor appetite” for the sector.

A few strategies stand out: Australian companies exposed to Asian tourism; US and European companies that benefit from stronger Asian demand for leisure and entertainment; and Asian companies that have monopoly positions in inbound tourism to the region.

4 great Australian tourism stocks

Sydney Airport (SYD) is an obvious winner. It’s not cheap, has plenty of debt, and detractors who say it is falling behind the curfew-free Melbourne Airport.

But it has a fabulous monopoly asset for at least another eight years, before the first stage of Sydney’s second airport at Badgerys Creek is completed. Sydney Airport has right of refusal to develop the city’s next international airport.

Sydney Airport will report its half-year results next Tuesday and its traffic performance, released in July, shows the potential. International and domestic passenger numbers had strong growth of 2.8% and 1.7% in June, year on year. Chinese demand grew 18.6% over a year.

The airport is a lower-risk way to play the long-term tourism trend, given Sydney is often the first destination for international travellers.

Valuation is the challenge. After delivering a 35% total return (including distributions) over one year, Sydney Airport is attracting more hold or reduce recommendations from broking firms, and is best bought below $5. Macquarie Equities Research’s 12-month price target of $5.54 looks about right. Sydney Airport is trading at $5.70

Chart 1: Sydney Airport

Source: Yahoo!7

Crown Resorts (CWN) is starting to look interesting as its price falls. The casino operator is leveraged to the growing Asian middle class through a 33.6% stake in the Nasdaq-listed Melco Crown, owner of casino resorts in Macau.

Crown has fallen to $13.48 from its 2014 high of $17.90 amid the market’s anxiety over Melco Crown, which is affected as the Chinese government’s anti-corruption campaign drives government officials from the lucrative VIP segment. Its shares fell further this week as equity and currency market volatility in Asia spooked investors and it announced a 19% fall in full-year profit.

Of 12 brokers who cover Crown, six have a buy, five a hold, and one a sell. Recent price weakness, if it continues, could be a buying opportunity for long-term investors. Crown has also today announced that chairman James Packer will be replaced by former Deutsche Bank head of corporate finance Robert Rankin.

Chart 2: Crown Resorts

Source: Yahoo!7

Among small stocks, SeaLink Travel Group (SLK) and Ardent Leisure Group (AAD) appeal. SeaLink, a 2013 float, owns passenger ferries and travel cruises under the SeaLink and Captain Cook Cruise brands. It rallied to $2.66, but fell to $2.15 amid market concerns that bad weather in New South Wales in the second quarter would dampen its full-year earnings when it reports later this month. SeaLink has since recovered.

Longer term, SeaLink is among the higher-quality small-cap companies and a beneficiary of Asian tourism, given its operations focus on Sydney Harbour.

Chart 3: SeaLink Travel Group

Source: Yahoo!7
Ardent Leisure (AAD) has also fallen this year. A $2.36 share price compares with a 52-week high of $3.49. It owns the Main Event family entertainment business in the US, and health clubs, bowling alleys, Gold Coast theme parks, and marinas in Australia.

The unexpected retirement of longstanding CEO Greg Shaw in March and appointment of Deborah Thomas, a publishing executive, surprised the market, and there are concerns that Ardent’s gyms, bowling alleys and theme parks are growing too slowly. The Main Event family entertainment business is going gangbusters and becoming a larger part of Ardent.

Three analysts who cover Ardent have a buy recommendation and seven a hold, according to consensus forecasts. Ardent would look more interesting below $2 a share, particularly if the full-year result, when reported this month, shows signs of recovery in the entertainment and fitness divisions.

Chart 4: Ardent Leisure Group

Source: Yahoo!7

And 2 good global tourism stocks

The US-listed Royal Caribbean Cruises and Carnival Corp have interesting prospects as the boom in outbound Chinese tourism drives stronger demand for cruising holidays in the US and Europe. On the supply side, the construction of fewer giant cruise ships in the past five years, a hangover from the 2008-09 Global Financial Crisis, is good news for leading cruise operators.

Royal Caribbean and Carnival dominate the global cruising market, are superbly leveraged to Asian tourism, and have good pricing power. Stronger interest in cruising, as the global population ages, is another growth driver.

Airports of Thailand, listed on the Bangkok Stock Exchange, stands out among Asian travel stocks. Thailand has had its problems, but remains one of the region’s fastest-growing tourism markets and, like other dominant airport stocks, Airports of Thailand has defensive qualities. Slowing growth in South-East Asian countries this year could temper inbound and outbound travel, but Airports of Thailand’s long-term prospects appeal.

– Tony Featherstone is a former managing editor of BRW and Shares magazines.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.