Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

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Thematic (Sector/Industry)

Australia Consumer discretionary / Thematic (Sector/Industry)

<h2>Executive Summary</h2><p>Australia has been a key beneficiary of China's rising middle-income class, with inbound tourists from the country growing at double-digit levels and showing no signs of slowing. Domestic leisure and travel-related companies are well-placed to take advantage of this trend longer term. However, investors need to beware what China giveth, it can easily taketh away. Any leverage to the China thematic could abruptly reverse to the downside, due to potential structural brakes to its economic growth and impact of periodic political events.</p><h2>Key Takeaways</h2><ul><li>Chinese tourists to Australia have grown at a CAGR of 17% over the past five years, driven by perceived safety relative to other destinations, pristine nature, a low Australian dollar and the recently-implemented open skies agreement between the two countries. The outlook appears equally rosy, with double-digit growth likely to be sustained, coupled with rising spend per visitor from the expanding Chinese middle class.</li><li>While current revenue leverage to this thematic is relatively low among Australian leisure and travel companies, multiple rerating often occurs ahead of any meaningful financial impact. To this end, we highlight <a href="https://www.smartkarma.com/entities/677" target="_blank" data-smartkarma-citation="entities:677:1">Qantas Airways Ltd (QAN AU)</a>, <a href="https://www.smartkarma.com/entities/20978" target="_blank" data-smartkarma-citation="entities:20978:1">Event Hospitality and Entertainment (EVT AU)</a>, and <a href="https://www.smartkarma.com/entities/7836" target="_blank" data-smartkarma-citation="entities:7836:1">Village Roadshow Ltd (VRL AU)</a> as the likely long-term beneficiaries of Chinese inbound growth and worth considering when their shares show sufficient discount to our fair value estimates.</li><li>However, leverage to China cuts both ways. There are risks to the country's long-term economic outlook, with Morningstar's China Economic Committee recently highlighting depleting sources of productivity gains and the challenges of transitioning from middle-income to high-income as key threats. Political events could also derail any China-driven growth, as can be in recent times attested by the South Korean and Taiwanese tourism industry, Macau gambling operators, and Australian high-roller casinos.</li><li>These macro issues are indeed partly why our fair value estimates for Australian leisure and travel companies have not yet fully factored in the potential "China upside."</li></ul><p><em>Analysts: Brian Han and Adam Fleck</em></p>

Executive SummaryAustralia has been a key beneficiary of China's rising middle-income class, with inbound tourists from the country growing at double-digit levels and showing no signs of slowing. Domestic leisure and travel-related companies are well-placed to take advantage of this trend longer term. However, investors need to beware what China giveth, it can easily taketh away. Any leverage to the China thematic could abruptly reverse to the downside, due to potential structural brakes to its economic growth and impact of periodic political events.Key TakeawaysChinese tourists to Australia have grown at a CAGR of 17% over the past five years, driven by perceived safety relative to other destinations, pristine nature, a low Australian dollar and the recently-implemented open skies agreement between the two countries. The outlook appears equally rosy, with double-digit growth likely to be sustained, coupled with rising spend per visitor from the expanding Chinese middle class.While current revenue leverage to this thematic is relatively low among Australian leisure and travel companies, multiple rerating often occurs ahead of any meaningful financial impact. To this end, we highlight Qantas Airways Ltd (QAN AU), Event Hospitality and Entertainment (EVT AU), and Village Roadshow Ltd (VRL AU) as the likely long-term beneficiaries of Chinese inbound growth and worth considering when their shares show sufficient discount to our fair value estimates.However, leverage to China cuts both ways. There are risks to the country's long-term economic outlook, with Morningstar's China Economic Committee recently highlighting depleting sources of productivity gains and the challenges of transitioning from middle-income to high-income as key threats. Political events could also derail any China-driven growth, as can be in recent times attested by the South Korean and Taiwanese tourism industry, Macau gambling operators, and Australian high-roller casinos.These macro issues are indeed partly why our fair value estimates for Australian leisure and travel companies have not yet fully factored in the potential "China upside."Analysts: Brian Han and Adam Fleck

Event Hospitality and Entertainment (EVT AU)

Leverage to Chinese Tourists Can Be Sweet and Sour: Implications on Australian Leisure and Travel