Comcast To Build A $3.3 Billion Theme Park In Beijing

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Comcast‘s (NASDAQ:CMCSA) NBCUniversal (NBCU), along with Beijing Shouhuan Cultural Tourism Investment Co. (a consortium of four state-owned companies), will build a $3.3 billion Universal theme park in Beijing. The theme park will be spread over 300 acre site and eventually expand to 1000 acres. [1] The project was approved this week by the Chinese government. Along with the theme park, NBCU will develop an entertainment complex and a Universal themed resort hotel. It must be noted that Disney (NYSE:DIS) is also building a theme park resort in Shanghai that is expected to open in 2015. China plays important role in the success of big Hollywood movies and building a theme park in the region makes a lot of sense. On the economic front, China is home to 11 of the top 20 amusement parks in Asia with about 166 million visits and close to $3 billion in revenues in 2013. [2] It is a huge market and it is expected to overtake the U.S. market by 2020. [3] On that note, we discuss below Comcast’s opportunity in the Chinese market.

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Why Is China An Important Market?

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According to a research by McKinsey, more than 75% of China’s urban consumers will earn $9,000 to $34,000 a year by 2022. [4] The higher percentage of the middle class in the population at large will translate into higher disposable income. China’s disposable personal income has increased from 17,175 CNY to 26,955 CNY in 2013. [5] This has led to a growth in various sectors such as retail, luxury goods and travel and leisure. Domestic tourism is growing at an average rate of 10% year over year. [6] Furthermore, there is an increasing demand for the theme parks, evident from the pipeline of 59 theme parks to be opened in the coming years. [3] The chart compiled by Trading Economics shows the growth trajectory of China’s disposable income per capita for the past decade.

Chinese are also inclined towards Hollywood movies, which have seen great success in the region. For instance, in 2014, Transformers: Age of Extinction grossed $301 million, while Captain America: The Winter Soldier and X-Men: Days of Future Past grossed $116 million in China. [7] The latest Transformers movie became China’s biggest ever box-office success, generating box-office sales of more than $200 million in less than a fortnight. Given that Chinese people like Hollywood movies, it is a great opportunity for large theme park operators such as Disney and Comcast to capitalize on the demand and offer world class rides with their technology and movie characters. For instance, Comcast could bring a Harry Potter or Transformers ride to its Beijing park. It must also be noted that theme parks provide an important platform to cross-market the media house’s other products such as movies, television and retail merchandise, which would further aid to the company’s overall revenues.

Our Estimates For The Beijing Theme Park

There were 220 million visitations to the U.S. theme parks in 2013 and out of those, Universal theme parks attracted 13.2 million visits last year. [8] If we assume similar market share in China, Universal could see a foot drop of more than 13 million people by 2020, subject to its opening and that the China’s theme park visitations grow to 220 million by 2020. This would translate into annual revenues of over $1.5 billion, according to our estimates. An estimated EBITDA margin of 40% for Comcast’s theme parks will translate into EBITDA of over $600 million by end of the decade. Comcast has not given any expected date of opening, but Disney’s $5.5 billion Shanghai theme park resort will be operational next year.

We estimate revenues of about $68 billion for Comcast in 2014, with Non-GAAP EPS of $3.02, which is in line with the market consensus of $2.86-$3.1, compiled by Thomson Reuters. We currently have a $60 price estimate for Comcast, which is about 15% ahead of the current market price.

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Notes:
  1. UNIVERSAL THEME PARK AND RESORT PLANNED FOR BEIJING, Comcast’s Press Release, Oct 13, 2014 []
  2. Amusement Parks in China: Market Research Report, IBIS World, Mar 2014 []
  3. China Theme Park Pipeline Report 2013, AECOM [] []
  4. Mapping China’s middle class, McKinsey & Company, June 2013 []
  5. China Disposable Income per Capita, Trading Economics []
  6. China Tourism, Travel China Guide []
  7. China Yearly Box Office, Box Office Mojo, As of Oct 15, 2014 []
  8. 2013 Global Attractions Attendance Report, AECOM []