Six Flags Entertainment to Expand in China

Zacks

Six Flags Entertainment Corporation (SIX) has entered into a new strategic partnership with China’s leading real estate developer, Riverside Investment Group Co. Ltd., to build theme parks in China. Multiple theme parks will be built under the Six Flags brand over the next 10 years. Financial terms of the agreement were not disclosed.

Based in Grand Prairie, TX, Six Flags currently has 18 parks in the U.S., Mexico and Canada. International expansion provides a long-term growth opportunity for the world’s largest regional theme park company. Its international expansion strategy is based on finding the right partner in the right market. In the current context, the company intends to capitalize on its partner Riverside Investment Group’s extensive knowledge of the local market. The company also plans to build a Six Flags-branded theme park in Dubai in partnership with Meraas Leisure and Entertainment LLC, per a deal entered into in April this year.

The company expands internationally under licensing agreements. As a result, it does not invest capital and generates revenues by selling the intellectual property rights and supervising park management.

Emerging markets are fast becoming the driver of global growth. According to International Monetary Fund (:IMF), emerging economies are expected to grow two to three times faster than developed nations like the U.S. Despite fears of an emerging market slowdown, IMF believes that these emerging economies are set for growth. This justifies the company’s decision to expand in the region.

However, we would like to remind investors that rides at these amusement parks run on gasoline. The current increase in gas price may compel the company to pass on the cost to its customers and hike admission rates. This may have an adverse impact on footfall, thereby hurting the revenues of this Zacks Rank# 2 (Buy) company.

Other players in the sector that look attractive at current levels, include Vail Resorts Inc. (MTN), Dover Motorsports Inc. (DVD) and Speedway Motorsports Inc. (TRK). While Vail Resorts sports a Zacks Rank #1 (Strong Buy), Dover Motorsports and Speedway Motorsports hold a Zacks Rank #2.

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