By Wing-Gar Cheng
May 27 (Bloomberg) -- Mission Hills Group, owner of the world’s largest golf club, will boost investment sixfold in a golfing complex on China’s Hainan island as the nation’s economic rebound spurs a tourism and property boom.
Mission Hills, based in Shenzhen, the southern city adjacent to Hong Kong, is to spend a further 25 billion yuan ($3.7 billion) by adding more golfing, retail and community facilities at its 5 billion-yuan club in Haikou, in the island’s north, Vice Chairman Ken Chu said in an interview in Hong Kong.
“We have confidence in the rise in Chinese consumption and them having a holiday mentality,” Chu said yesterday. “We see the growth of the game and we see the growth of this business sector.”
Economic growth increased the number of millionaires in China to 875,000 in 2009, according to Hurun Research Institute, helping boost tourism and property development on tropical, beach-fringed Hainan. Mission Hills is switching its focus from foreigners to Chinese golfers as the nation’s newly wealthy seek aspirational leisure pursuits, Chu said.
China’s approval of Hainan, a southern province, as an international tourism hub in January sent property prices soaring. They rose 50.5 percent in the provincial capital Haikou in February, and 49.3 percent in the southern resort city of Sanya, according to government data. In April, prices jumped 53.3 percent in Haikou and 52.3 percent in Sanya.
The designation allows for the construction of resorts, expansion of facilities to cater to exhibitions and conventions, and eventually the opening of duty-free shopping.
‘More Gains’
“There might be more gains, especially as the people who buy homes are the rich mainland ones who want to invest in or buy properties for their holidays,” Wang Ren, a Hong Kong-based property analyst at CCB International Holding Ltd., said in a phone interview. “As there are more and more rich Chinese, golf will become more popular.”
Mission Hills opened a 12-course club, the world’s largest, in 1992 in the southern province of Guangdong, catering mostly to foreign golfers, who made up 80 percent of its customers. It is now targeting Chinese players who have grown rich in an economic boom that sent annual urban wages 64 percent higher to 17,175 yuan in the five years to 2009.
The Hainan club, built on top of a volcano, opened in March offering an initial six courses, according to company data. The group is operating it as a public, rather than a members-only, facility to attract more golfers, Chu said.
30 Courses
When fully completed, the Hainan club will feature 10 courses, according to the company, and will be similar in size to the Shenzhen complex, which spreads across 20 square kilometers (5,000 acres), or equivalent to the combined size of six Central Parks in New York City. The Hainan government, meanwhile, suggests on its website that the development may eventually have 30 courses.
Southern China, particularly the Pearl River Delta region and Hainan, will remain Mission Hills’ core investment area in China, Chu said. The group has about 6,000 corporate and individual members at its Shenzhen club, which has 10,000 employees, he said. The Hainan club currently has 2,000 staff.
Since golf was added to the Olympics program in October, the number of people playing the game has risen to 5 million from 3 million, according to China Golf Association. China topped the gold-medal standings at the Beijing Olympics in 2008.
“The country will be spending money to promote the game, to build the younger generation to participate in the sport,” Chu said. “There’s a chance for them to win a gold medal and golf is a game in which the Chinese can excel.”
--With assistance from Chia-Peck Wong in Hong Kong. Editors: Mark McCord, Garry Smith.
To contact the reporter on this story: Wing-Gar Cheng in Hong Kong at wgcheng@bloomberg.net.
To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net.
Friday, May 28, 2010
Friday, May 14, 2010
Golf in China: Targeting 3 Million Players
The Wall Street Journal
China is one of the few places globally still building golf courses. As Dow Jones Investment Banker reports, potential sand traps and water hazards mean this may provide an opportunity for buyout firms and course-management companies that cut their teeth turning around busted courses in places such as the U.S. and Japan.
Growth potential for the game does exist in China, but it’s too expensive for most people; stir in a potential golf-course building glut–in the holiday island of Hainan, at least–and returns could get clobbered, pushing weak operators to the wall.
Getting accurate statistics on Chinese golf is difficult. The China Golf Association, for example, thinks there are around 500 courses; KPMG believes it was nearer 300 at end-2008. Muddying the water is a widely flouted 2004 moratorium on new golf-course construction.
Meanwhile, estimates for the number of golfers range from 300,000 to three million! KPMG thinks the number of club members who play regularly is nearer 300,000, partly due to national average initial membership fees being an eye-watering $50,000–4.5 times the level in Spain–and average weekend green fees that weigh in at $150. Depending which statistics you use, there could be as few as 600 players per course in China, suggesting heavy oversupply resulting in around one-sixth the amount of players on China’s fairways compared with in Japan, or an equally extreme dearth of courses, with 10,000 players per course, or 5.3 times more players teeing off on a typical Chinese course than on its American equivalent.
Granted even the three million golfer figure — just 0.2% of China’s population–suggests plenty of room for expansion before the game’s popularity approached what it is in, say, Japan, where it is played by roughly 7% of the population.
China’s courses are concentrated mainly in the wealthy or temperate eastern and southern provinces, such as Beijing, Jiangsu, Guangdong and Hainan.
Hainan, interestingly, is exempt from the 2004 new-course ban, as part of efforts to build out the tourism industry and cater to an expected influx of tourists wielding their five-irons.
The island currently has 21 courses, according to the 2009-2010 Golf Course Guide to China, and quite how many more courses it intends to build is unclear. Some reports put a long-term goal of 100 courses on the island, while others talk of 50 new courses within three years. One Asian golf course operator told Dow Jones Investment Banker that he believed the number would be nearer to 30 new courses over the coming decade.
None of the Chinese golf club operators is listed, so it’s hard to know financial positions and breakeven points. But Japanese operators Accordia Golf Co. Ltd. and Pacific Golf Group International Holdings K.K. make good operating profits from about 150 rounds per day being played at their 130-odd courses each. A former course manager in China told us those levels would be equivalent to peak seasonal play in China, however.
Assuming 350,000 Chinese players today–slightly more than KPMG’s figure–and that the number grows at a rude 10% annual clip gives 900,000 players by 2020. If 40% of those players came to Hainan for a five-day break to play 7-8 rounds, that yields about 1,000 local players per day playing a total 2.7 million rounds for the year. At 152 rounds per day per course that implies the island could support 50 courses by 2020 based on quite rosy domestic demand assumptions and allow the courses to be EBIT profitable assuming a cost structure similar to the listed Japanese plays. Still, the assumptions underpinning that are quite bullish.
Clearly 80-100 courses over the next decade means the island is either going to need to attract a lot more foreign players, or operators will need to change their business model from a luxury service to a mass-market approach in order to create the volume to generate necessary cash flows, or many of those courses will either never be built or some operators will need to go under. What’s more likely is that some combination of the above needs to occur.
When a shake-out happens, it could prove an opportunity for investment funds and savvy course operators too. In Japan, Goldman Sachs and Lone Star made names for themselves through buying up bankrupt courses in the wake of the real-estate bust there, and in the U.S., KSL Capital Partners bought out ClubCorp Inc. in 2006.
Japan’s Accordia Golf paid an average 1.67 billion yen for Ebitda of 0.2 billion yen for acquisitions in 2009, according to Macquarie, which equates to a going-in cap-rate of 12% for courses from mainly distressed sellers.
That could be a benchmark rate if Hainan overshoots in its golf course roll-out.
-Jamie Miyazaki
Dow Jones Investment Banker,
Golf,
Jamie Miyazaki
China is one of the few places globally still building golf courses. As Dow Jones Investment Banker reports, potential sand traps and water hazards mean this may provide an opportunity for buyout firms and course-management companies that cut their teeth turning around busted courses in places such as the U.S. and Japan.
Growth potential for the game does exist in China, but it’s too expensive for most people; stir in a potential golf-course building glut–in the holiday island of Hainan, at least–and returns could get clobbered, pushing weak operators to the wall.
Getting accurate statistics on Chinese golf is difficult. The China Golf Association, for example, thinks there are around 500 courses; KPMG believes it was nearer 300 at end-2008. Muddying the water is a widely flouted 2004 moratorium on new golf-course construction.
Meanwhile, estimates for the number of golfers range from 300,000 to three million! KPMG thinks the number of club members who play regularly is nearer 300,000, partly due to national average initial membership fees being an eye-watering $50,000–4.5 times the level in Spain–and average weekend green fees that weigh in at $150. Depending which statistics you use, there could be as few as 600 players per course in China, suggesting heavy oversupply resulting in around one-sixth the amount of players on China’s fairways compared with in Japan, or an equally extreme dearth of courses, with 10,000 players per course, or 5.3 times more players teeing off on a typical Chinese course than on its American equivalent.
Granted even the three million golfer figure — just 0.2% of China’s population–suggests plenty of room for expansion before the game’s popularity approached what it is in, say, Japan, where it is played by roughly 7% of the population.
China’s courses are concentrated mainly in the wealthy or temperate eastern and southern provinces, such as Beijing, Jiangsu, Guangdong and Hainan.
Hainan, interestingly, is exempt from the 2004 new-course ban, as part of efforts to build out the tourism industry and cater to an expected influx of tourists wielding their five-irons.
The island currently has 21 courses, according to the 2009-2010 Golf Course Guide to China, and quite how many more courses it intends to build is unclear. Some reports put a long-term goal of 100 courses on the island, while others talk of 50 new courses within three years. One Asian golf course operator told Dow Jones Investment Banker that he believed the number would be nearer to 30 new courses over the coming decade.
None of the Chinese golf club operators is listed, so it’s hard to know financial positions and breakeven points. But Japanese operators Accordia Golf Co. Ltd. and Pacific Golf Group International Holdings K.K. make good operating profits from about 150 rounds per day being played at their 130-odd courses each. A former course manager in China told us those levels would be equivalent to peak seasonal play in China, however.
Assuming 350,000 Chinese players today–slightly more than KPMG’s figure–and that the number grows at a rude 10% annual clip gives 900,000 players by 2020. If 40% of those players came to Hainan for a five-day break to play 7-8 rounds, that yields about 1,000 local players per day playing a total 2.7 million rounds for the year. At 152 rounds per day per course that implies the island could support 50 courses by 2020 based on quite rosy domestic demand assumptions and allow the courses to be EBIT profitable assuming a cost structure similar to the listed Japanese plays. Still, the assumptions underpinning that are quite bullish.
Clearly 80-100 courses over the next decade means the island is either going to need to attract a lot more foreign players, or operators will need to change their business model from a luxury service to a mass-market approach in order to create the volume to generate necessary cash flows, or many of those courses will either never be built or some operators will need to go under. What’s more likely is that some combination of the above needs to occur.
When a shake-out happens, it could prove an opportunity for investment funds and savvy course operators too. In Japan, Goldman Sachs and Lone Star made names for themselves through buying up bankrupt courses in the wake of the real-estate bust there, and in the U.S., KSL Capital Partners bought out ClubCorp Inc. in 2006.
Japan’s Accordia Golf paid an average 1.67 billion yen for Ebitda of 0.2 billion yen for acquisitions in 2009, according to Macquarie, which equates to a going-in cap-rate of 12% for courses from mainly distressed sellers.
That could be a benchmark rate if Hainan overshoots in its golf course roll-out.
-Jamie Miyazaki
Dow Jones Investment Banker,
Golf,
Jamie Miyazaki
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