China has the week off as we enter the Year of the Pig. It's increasingly popular for its citizens to hit the slopes.
This is a boon to Japan, the nation with the best snow in Asia. South Korea is a distant second, as it must manufacture quite a bit of its snow and still is offering icy conditions much of the time.
The snow in Japan is fluffy and dry. Above all, it's consistent. Niseko and Hakuba, opposite freezing Siberia and the warm Sea of Japan, both get more than nine meters of snow every year, which is more than Aspen, Vail or Whistler.
As a result, "Japow" promises face shots and white rooms for skiers and snowboarders heading to the northernmost main island, Hokkaido, or the "Japanese Alps" on Honshu, a four-hour bullet-train ride northwest of Tokyo.
One stock worth watching has a name that belies its nature. Nippon Parking Development Co. T:2353 began life in 1991 as a specialist at parking-lot subleasing. However, it has built itself into an operator of prime ski properties in Nagano and Niigata prefectures. And for this season it has become part of the expansive Epic Pass from Vail Resorts Inc. (MTN) .
Skiers and boarders may want to watch its selection of slopes. Investors should watch its high return on earnings.
Nippon Parking Development, or NPD, entered ski-resort management 13 years ago. Its portfolio includes four resorts in Hakuba, which hosted the downhill events during the 1998 Winter Olympics in nearby Nagano.
The company is still run by president and founder Kazuhisa Tatsumi, whose parents ran a liquor store in Osaka. He owns 30% of NPD, which still engages in its core parking business. It subleases car parks from corporations, then raises utilization rates.
There are 70,000 buildings in Japan with parking lots. The average usage rate is 70%, and fewer than 15% of the parking lots have outsourced their operations. NPD has 1,200 clients and a capital alliance with Toyota Motor Corp. (TM) .
The Asia-focused brokerage CLSA sees plenty of opportunity in this segment, with personnel-strapped Japanese corporations looking to outsource noncore activities. This trend provides NPD with a cash cow that it can milk for money to invest into ski slopes, where it benefits from the rise in intra-Asian travel.
NPD has posted higher sales and profits for the 17 years since it went public in 2003. It jumped into ski resorts soon after its initial public offering, buying Nippon Ski Development in 2005.
Ski resort traffic is still half of what it was during Japan's bubble in the late 1980s. However, the total number of tourists into Japan last year hit a record of 31.2 million, and the government is targeting an easy-to-achieve 40 million per year heading into 2020, when Tokyo hosts the Summer Olympics.
Beijing will host the Winter Olympics in 2022, and the Chinese government is hell-bent on promoting winter sports in the meantime. There are 12 million Chinese skiers and snowboarders. The bigwigs in Beijing would like to see that figure hit 120 million by the time of the winter games.
China has few mountains worth scaling to ski, so those snowhounds will head to Japan. Chinese tourists are finding it easier and easier to head to Japan, where the government has freed up the visa process.
So far, Niseko in Hokkaido has been the main place to attract foreign skiers and snowboarders. Around half the visitors are from abroad. You'll hear Thai and Vietnamese accents on those slopes nowadays as well as plenty of Aussie brogue and Mandarin notes.
NPD operates four major resorts in the Hakuba valley on Honshu island, some of the best skiing nearest to Tokyo. Fewer than 10% of the 1.66 million skiers who visit the Hakuba valley come from abroad, and half of those are Australian. Aussies, coming from a developed economy, were some of the first skiers to discover Japan's slopes, but the rest of the Pacific region is following suit as incomes rise.
Inbound traffic to NPD's Hakuba resorts doubled from 2017 to 2018, but is still only 160,000 heads. Hardly any at this point come from China. The government in Japan estimates skier numbers nationwide could double to 60 million by 2030.
China is home to 400 million millennials, a generation just shy of 1 billion across Asia. Most of the remaining 586 million live in India, Indonesia or South Korea, with only 20 million in Japan. That generation will start hitting its peak earnings period over the next 10 years, and snow sports (such as scuba diving) are a fashionable pastime getaway. Only 9% of Chinese citizens hold passports; two-thirds of those who do are millennials.
NPD is in a position to increase lift prices and season-ticket sales; at the moment, 41% of its tickets are sold at the window, and only 9% are for the season, whereas 40% of the tickets at Vale are season passes. NPD also has the cash to expand by buying other resorts in Japan, where it is very difficult to build more slopes due to environmental regulations.
Indeed, NPD estimates only 100 out of the 400 ski slopes in Japan are economically viable. NPD could buy the profitable Hakuba Goryu or Hakuba 47 slopes that neighbor its own.
"We see upside optionality to earnings if NPD can successfully execute on M&A," CLSA analyst Robert Purcell wrote in a Jan. 28 report.
Purcell forecasts that NPD's revenue could increase by close to 10% through the 2022 fiscal year. Ski resort operations should be growing by 15% per year from 2020 onward, with an added kicker from a similar pace of growth from NPD's theme-park operations. That trend would mean operating profit would grow around 20% per year from now through 2022.
The Epic Pass, with 740,000 holders worldwide, is the biggest season pass globally. It gives holders unlimited access to Vail's 11 resorts, which include Vail, Breckenridge, Park City, Whistler Blackcomb and Heavenly in the West, as well as Stowe in Vermont and Perisher in Australia. There's a "local" version for the U.S. West and another for Australia.
All the passes now include five days of skiing in the 10 resorts along the Hakuba Valley in Japan, which will prove particularly popular for Australian skiers, but also promises greater arrivals from North America.
It's a great time for Asia's traders to take off to make some fresh tracks. Many of Asia's markets were closed to mark the Lunar New Year on Tuesday. Hong Kong only resumes trading on Friday, with the markets in Shanghai, Shenzhen and Taipei closed all week.
I'm not joining them this time around. After taking the family to Hakuba two years ago and Niseko last year, I'm cooling my heels in a warm Hong Kong. Normally the Lunar New Year is the last, and the coldest, snap of winter. But it has been a balmy winter for much of the season, and I was out in shorts and T-shirt and 80-degree sunshine at this writing.
It could be worse. The reason I'm not up in Japan? Flights full of Chinese skiers heading north were too full, and too expensive, meaning business is thriving for NPD.