Hong Kong joins Disney's small world
By Jasmine Yap
Bloomberg News Service
HONG KONG — Walt Disney Co., facing slower earnings at theme parks in the United States, is breaking ground today on its $2.9 billion Hong Kong Disneyland, the first step in the No. 2 U.S. media company's push into China.
Disney is banking on record tourist arrivals in Hong Kong and is competing with Vivendi Universal SA, which is planning parks in Shanghai, for a slice of the Chinese market.
Tourism from China surged last year, when 6.1 million mainlanders visited the former British colony in the first 11 months, a gain of about 50 percent from a year earlier. That made China the city's biggest source of visitors, accounting for two-fifths of the total.
"This area of the world is possibly the most important growth area for Disney in the next few decades," said Jordan Rohan, an analyst at SoundView Technology Group in Old Greenwich, Conn.
Disney also is talking with the Chinese government about plans for a park in Shanghai.
Hong Kong needs boost
Disney invested $314 million for a 43 percent stake in Hong Kong International Theme Parks Ltd. The company persuaded the Hong Kong government, which holds a 57 percent stake, to pay for most of the rest.
The company says the Hong Kong park, a 310-acre development in Penny's Bay on Lantau Island, will be a 10-minute railway ride from the airport and half an hour from downtown. It targets 5.6 million visitors a year when it opens in 2006 and will employ 18,000 people.
At today's ground-breaking, Disney Chairman Michael Eisner and Hong Kong Chief Executive Tung Chee Hwa are to meet in a city that is counting on the project more than it did when it was announced in November 1999, at the tail end of Asia's financial crisis.
The benchmark Hang Seng Index has fallen 27 percent since the project was announced, the jobless rate in Hong Kong stands at a near-record 7.1 percent and Shanghai is looming larger as a potential competitor for the city's mainstay financial business.
Tung has said he must raise taxes to pay a budget deficit forecast to rise to at least $9 billion. Hong Kong has a maximum 16 percent company tax rate now, among the lowest in the world.
"Disney is definitely positive for Hong Kong," said John Saunders, of CLSA Emerging Markets in Hong Kong. "Tourism and job creation are the two key and obvious ways that would contribute to Hong Kong's economy."
Asia offers hope
Burbank, Calif.-based Disney needs to boost revenue after the Sept. 11, 2001, terrorist attacks discouraged people from traveling. Theme park revenue fell 8 percent in the year ended Sept. 30 on lower ticket sales and hotel occupancy at Walt Disney World Resort, the Disneyland Resort and other U.S. attractions.
Operating income from theme parks fell 26 percent to $1.2 billion. Between them, theme parks and resorts accounted for 25 percent of Disney's revenue last year and two-fifths of its operating income. Disney shares fell 21 percent last year, against a 23 percent drop in the S&P 500 index.
Last year, sales fell by $496 million at the Walt Disney World Resort in Orlando, Fla., and $40 million at the Disneyland Resort in Anaheim, Calif.
Beyond the United States, Euro Disney SCA, which operates the Disneyland Paris complex, reported an annual loss of $34.8 million in the year ended Sept. 30. Disney owns a 39.1 percent stake in the French company.
Asia has been a bright spot: Oriental Land, which opened Tokyo DisneySea in September 2001, reported that net income more than quadrupled to $75.2 million in the six months ended Sept. 30.
Disney's eye is on China
Disney competitor Vivendi, however, also is expanding into China. The company plans with two companies owned by the Shanghai city government to build a theme park in the city's Pudong district by 2006, Vivendi executives said in November.
Vivendi also aims to build China's second Universal Studios park in Beijing before the 2008 Olympics, according to media reports in Hong Kong.
Disney's Hong Kong park will have two hotels and a retail, dining and entertainment complex on opening day. The company aims to expand it to two theme parks, 5,800 hotel rooms and a 300,000-square-foot entertainment center.
"The Disney project will attract a lot of visitors," said Anthony Wu, of Lehman Brothers in Hong Kong. "Mainland Chinese, and other tourists coming to Hong Kong, would definitely want to visit Disneyland."
