Galasys, which recently listed on AIM, provides ticketing management systems and solutions to many of China’s big theme parks. And, as odd as it may sound, in centrally-controlled, communist China, tens of millions every year are now flocking to such parks as part of their overall lifestyle improvement. Editor Ian Lyall takes a much closer look at the potential of this new listing and looks at its journey up to this point. And, as odd as it may sound, in centrally-controlled, communist China, tens of millions every year are now flocking to theme parks as part of their overall lifestyle improvement.
The rise of China’s middle classes manifests itself in many ways.
The insatiable demand for luxury goods has seen hundreds of designer shops springing up in the hearts of Beijing, Shanghai and Guangzhou, while the obsession with jewellery means the People’s Republic is now the world’s largest gold importer. The desire to play as well as work has created a vibrant and growing leisure sector. And, as odd as it may sound, in centrally-controlled, communist China, tens of millions every year are now flocking to theme parks as part of their overall lifestyle improvement.
Their size dwarfs anything seen here in the UK. The Chime Long Guangzhou Tourist Resort, for instance, was host to 14mln visitors in 2013. To put that into context, Alton Towers, the Staffordshire attraction, pulled just 3mln ride-goers through its turnstiles. Meanwhile, Blackpool, the quintessentially working-class British resort, with its donkey rides, trams and the tower, received 4.5mln visitors last year. The scale of these Chinese operations ranks right up there with some of the largest American destinations. It is important to grasp this when assessing the potential of Galasys (LON:GLS), which listed on AIM earlier this week.The group provides ticketing management systems and solutions to many of the big parks. Not only is Chime Long one of its major customers, it has another 13 of the top 20 largest theme parks and it has 15 of the top 20 water parks on its roster. In fact it has sewn up 65% of the premier theme park and 75% of the water park markets. In all it has over 60 clients and printed more than 90mln tickets last year.
For a technology company new to the junior market, it is an oddity in that it is profitable. Galasys has raised £3.1mln, giving it a market capitalisation of £16.6mln. This puts it on a valuation of just over 13-times post-tax profits, which is relatively modest by anyone’s standards. Its profit margins were 27% based on its £1.3mln post-tax surplus. Peer comparisons are difficult to find. But it is worth pointing out that London-listed Accesso Technology group(LON:ACSO), which provides queuing solutions for theme parks, generated after-tax profit of just under £2mln, yet has a market capitalisation of £112mln.
Now, we may not be comparing apples with apples, but it suggests there may be some upside post the IPO. Galasys’s portfolio spans ticketing, point of sales, electronic commerce, e-wallets and customer relationship management. It must be stressed that the group’s offering is software based, not hardware, as the profits margin we allude to earlier suggests.
Each of its top 10 customers takes at least three of its 10 major modules and are continuing to buy more every year.
In the five years from 2005, Galasys concentrated on simply licensing is software and services, gaining additional revenues from maintenance and upgrades and purchase of additional modules as its customers’ operations grow. But since 2010, Galasys added new engagement models to just ‘solutioning’. It began ticketing and IT outsourcing, or in the case of the second-tier operators, taking over the certain aspects of their operations such as ticketing. While this has meant significant investment upfront, the payback is a revenue share based on the number of tickets sold. It means as these parks expand, so do Galasys’s top and bottom lines.
“This is a very scalable and profitable model, but there is investment upfront,” says chief executive and co-founder Seah Kok Wah.
“This is the business model that we will continue to grow more aggressively after the listing.”
This evolution of the business model is part of a well thought out expansion programme, which will be funded from the cash raised at IPO. In addition, the firm’s development of a cloud-based ticketing sales service will allow theme parks to sell their park tickets via online travel agents – the Chinese equivalents of Expedia and lastminute.com. This platform should be up and running next month and Galasys will receive a revenue share of whatever is sold online – this might be as much as $1 a ticket. It should be emphasised that the cloud-based platform is low cost, so much of the revenue generated will drop to the bottom line.
The group is also looking to grow geographically, starting with Asia and countries such as Indonesia, Vietnam and Japan, before moving into Europe and North America in later years. That said, it has a modest sales operation here in the UK as it tests the water of this new Western market. There are also opportunities to develop products that help boost the amount of cash spent per visitor that lend themselves to further revenue sharing opportunities. Queuing applications, mobile apps and e-wallets all fit into this category. Meanwhile, there is also the opportunity to add new customers in China to its roster.Galasys shares listed at 22.5p each and got off to a first day premium, trading up to 24.5p.Chairman Teh Kim Seng sums it up neatly when he says: “We think we have an interesting story of where we came from and where we are heading.“Asia remains the highest growth market for the amusement park industry with double digit growth in the number of parks being built as well as the number of visitors.“In the past, we have grown with the number of parks and their expansion and growth.“Going forward, we will correlate our growth more directly with the number of visitors going to these parks.“We are something totally new in terms of growth and expansion, and we aren’t particularly high-risk.”
(Source: http://www.proactiveinvestors.co.uk/companies/news/68512/galasys-has-a-scalable-and-profitable-model-says-chief-executive-68512.html, 14 May 2014)