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New ships drive RCL yield growth, Asia capacity rises as Caribbean retracts

New ships drive RCL yield growth, Asia capacity rises as Caribbean retracts
New ships are expected to drive about half of Royal Caribbean Cruises Ltd.'s yield growth in coming years, while Asia-Pacific deployment will swell to 20% of capacity in 2016, up from 16% this year, as Caribbean capacity declines to 40% from 43%.

So said William Blair & Co. in a note following Royal Caribbean's analyst day.

New ships, with their richer cabin mix, more on-board spending opportunities and greater fuel efficiency, will be a significant factor in yield growth. William Blair analyst Sharon Zackfia reported RCL's ships introduced since 2006 generate an average of 30% more revenue, have 10% lower net cruise costs and three times the EBITDA of pre-2006 vessels.

RCL's revenue growth will also be supported by leveraging its global footprint, particularly in the Asia-Pacific region, and more—and more effective—marketing, Zackfia said.

China continues to generate significant premiums over the rest of the world, with good on-board spending in the shops and casinos and a younger average passenger. With Quantum of the Seas now based in Shanghai, the company's China capacity is expected to grow to 9% in 2016 from 6% this year.

Net cruise costs are projected to benefit from rationalization of RCL's global footprint, including consolidating and outsourcing call centers and more efficient back office operations. Fuel efficiency is also expected to improve more than 13% in 2015, and Royal Caribbean management told analysts its ships are 11% to 20% more fuel efficient than those of Norwegian Cruise Line Holdings and Carnival Corp. & plc.

William Blair continues to project RCL earnings per share of $4.73 in 2015, a 40% increase over 2014 and above the consensus estimate of $4.68, on a 3% to 3.5% increase in constant-currency net yields. For 2016, the brokerage's estimate is $5.98, a 27% increase and in line with the $6.01 consensus.

'Royal’s stock has risen about 9% year-to-date and is now trading at 15 times our 2016 EPS estimate. We continue to see value in Royal’s shares from current levels given underlying drivers and articulated financial targets that seem likely to yield healthy 20%-plus EPS growth over the next few years with steadily improving ROIC,' Zackfia said.

William Blair reiterated its 'outperform' rating for Royal Caribbean.

RCL shares closed at $90, up 5 cents, on Thursday.

 

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