This article first appeared in The Edge Malaysia Weekly on August 28, 2023 - September 3, 2023

SINGAPORE-listed theme park developer and operator Sim Leisure Group Ltd, known for its Escape nature-themed parks, could be in line for yet another record net profit this year, fuelled by pent-up demand and additional new attractions. If so, that would beat the previous record net profit of RM22.16 million in 2022.

Sim Leisure rebounded quickly once travel restrictions were lifted in April 2022, reversing a net loss of RM11.8 million in the financial year ended Dec 31, 2021 (FY2021), which it attributed to the disruption caused by the Covid-19 pandemic.

The group’s net profit for 1HFY2023 was up 5% to RM8.83 million from RM8.38 million a year earlier. Revenue more than doubled in the same period to RM55.59 million.

The pent-up demand, especially to reconnect with nature following two years of Covid-19-related lockdowns, has helped boost the revenue and profit of the group, according to Sim Leisure founder and executive chairman Datuk Sim Choo Kheng.

“Visitor numbers to our theme parks have now rebounded to pre-pandemic levels,” Sim, 58, tells The Edge in an interview. Sim is currently the single largest shareholder of Sim Leisure, with a 55.29% stake as at March 22. Its non-executive director Tan Boon Seng is the second-largest shareholder, owning a direct stake of 1.21% and an indirect stake of 26.01% through his private vehicle Desamal Capital Sdn Bhd. Tan currently serves as chairman of the Dragon-i and Canton-i chain of Chinese restaurants in Malaysia.

The pandemic has been both a blessing and a ‘disaster’ for the group, says Sim. “Even before the pandemic, our theme park business was already on an upward trajectory. Then the pandemic shutdowns came.”

However, post-Covid-19, the tourism industry has witnessed a major shift in trend, with an increasing demand for outdoor-based nature activities. And this has, in a way, accelerated a growing awareness of Sim Leisure’s Escape brand, whose theme parks are based on environment-friendly leisure and green initiatives.

“When we started building Escape parks 15 years ago, we saw the future of the theme park business moving away from one that offers mechanical rides to nature-based attractions. I saw the trend coming, but Covid-19 accelerated it,” says Sim.

While the group hails a strong first-half performance, Sim points out that the performance was based on existing parks, namely the Escape outdoor adventure park in Penang, the Escape Challenge indoor park at Paradigm Mall in Petaling Jaya and Kidzania Kuala Lumpur.

“In the second half of the year, a new Escape Adventure Park in Ipoh, Perak is coming on stream. It is set to open in 4Q. And traditionally, the second half of the year is busy, especially in the last quarter. Thus, we expect an improved [financial] performance in 2HFY2023 compared with a year earlier,” he says.

However, the Escape Cameron Highlands that was proposed for construction in Pahang will no longer be moving forward, as the agreement has lapsed due to the landowner’s delay in securing land titles and approval from the relevant authorities, Sim Leisure said in a filing with the Singapore Exchange on Aug 11.

The proposed project had courted controversy in 2021 after the public raised concerns over the park’s impact on the environment and the surrounding communities of the famous hill. Unfazed by the latest setback, Sim remains bullish on the group’s performance next year with a line-up of new attractions expected, including KidZania Singapore and two Escape Challenge indoor parks in Alamanda Putrajaya and Paradigm Mall, Johor Baru.

Next year, the group will also benefit from contributions from its theme attractions construction business in the Middle East, comprising Sim Leisure Gulf Contracting LLC (SLGC) and Sim Leisure Makers Sdn Bhd, following the completion of the acquisition of SLGC in January this year. The group’s 60%-owned indirect subsidiary, Sim Leisure Arabia Contracting LLC, was recently awarded a US$23.6 million (RM110 million) subcontract for theming works for a Six Flags Qiddiya project in Saudi Arabia. The proposed theme park development spans 32ha with six themed lands and 28 rides and attractions. Construction is expected to start in 4QFY2023.

Sim Leisure also has its cinematic-adventure-based virtual reality (VR) attractions in the works, and plans to open its first HavenXR VR cinemas in Singapore and Kuala Lumpur concurrently by 1Q2024, says Sim.

The group holds the exclusive licensing rights from Australian entertainment company Haven XR Holdings Pty Ltd to develop and operate HavenXR VR centres in Southeast Asia and China.

“We plan to roll out hundreds of these VR centres in Asean and China in the next five years. The technology is ready,” he says.

Sim believes this new form of entertainment will be the next big thing in shopping malls as consumers increasingly prefer watching movies in the comfort of their own homes, thanks to Netflix. The group sees opportunities to capitalise on the growing trend among mall owners who are transforming their properties to lifestyle centres to bring in the foot traffic they need.

“The capital expenditure (capex) to open a HavenXR VR cinema is about RM3 million,” discloses Sim.

Sim says the group’s current investment model sees the landowner or mall owner funding the initial capex of a joint-venture (JV) development, with Sim Leisure committing a minimum 5% of the gross turnover for annual reinvestment. The group also pays the landowner or mall owner a 10% return per year of the capex cost or revenue, whichever is higher.

“Rather than venturing into something they don’t know, the landowner/developer gets us to develop a theme park and they will be guaranteed a return on their investment in the JV. Take the Escape Adventure Park in Ipoh, for example. The landowner funds the capex and we guarantee them a 10% return per year of the capex cost or revenue for the next 30 years. This business model works for us. We have received a lot of invitations [to jointly develop theme parks],” he adds.

The capital structure also ensures that the group is not heavily dependent on raising money all the time, says Sim.

“It is a win-win situation. The developer or mall owner does not go into a business that they are not familiar with and make huge losses and, this way, their interests are safeguarded. There is nobody else in the world that offers this type of collaboration. Therefore, we are very confident that we are able to roll out our business rapidly using our efficient deployment of capital. We know that there are many shopping malls that would not mind funding the capex [to introduce HavenXR VR cinemas],” he adds.

Under its partnership with Haven XR, Sim Leisure is expected to establish at least 30 HavenXR VR centres in three years. At end-June 2023, Sim Leisure had RM32.65 million in cash and bank balances, with borrowings amounting to RM20.06 million. Its net cash position stood at RM12.59 million.

The pandemic had sent profits of theme park companies around the world spiralling downwards, forcing some to close indefinitely. According to Sim, Covid-19 has reset the industry and further weakened some of his competitors, which were already struggling to maintain profitability even before the pandemic. In fact, the crisis gave Sim Leisure a chance to be part of the KidZania franchise by acquiring the brand’s exclusive franchise licences in Malaysia and Singapore.

“I have known the KidZania brand for a long time. I never dreamed of acquiring one, let alone two. But Covid-19 has given me the opportunity to do that. I personally love KidZania because I find its concept is so Asian, even though it is owned by Mexican KidZania de Mexico SA de CV. Why? Because it is part of our culture that we Asian parents want our children to do well. Asian parents love to inspire their children, help them get their first taste of work, and KidZania provides that role-playing, which explains why the most successful markets in the world for KidZania are Japan and South Korea. So I am confident that KidZania Singapore will do very well. In fact, I expect the operations to turn profitable in the first year like that of KidZania Kuala Lumpur,” he says.

In December 2020, Sim Leisure acquired KidZania KL, which was a distressed asset, from licensee Rakan Riang Sdn Bhd for RM3.8 million. It also recently secured the assets of discontinued KidZania Singapore from the liquidator for S$110,000 (RM377,000), as well as the lease at Sentosa, Singapore with Sentosa Development Corp for five years with an option to renew for another five years.

“We have started renovating KidZania Singapore, with plans to launch it in 1Q2024,” says Sim.

He adds that the group continues to be on the lookout for theme park attractions.

“Yes, we are picky. We are not going to acquire mechanical-based theme parks because we see no future in this [segment]. Mechanical theme park is a sunset industry. But anything that is aligned with our retro-eco format, we will consider.”

In his previous interview with The Edge in November last year, he had said that Sim Leisure was in close contact with KidZania’s Mexican franchise owner to look into opening sites overseas. On this, Sim says the group is still keen to do that but did not elaborate.

Meanwhile, Sim says the group is looking to expand its Escape outdoor adventure park concept in the Klang Valley, as well as abroad. “We are looking to expand beyond Malaysia, to markets such as Australia, China and Asean. We will either deploy the 10-10 capital investment model or the licensing business model.”

Sim Leisure also aims to open about seven to eight Escape Challenge indoor parks in shopping malls across the Klang Valley in the next two years, before expanding its footprint in Southeast Asia and China.

“Investors should think carefully before investing in theme parks. We can build a theme park for a fraction of the cost other developers built them for, and with a lot more fun because this business is not all about spending money. It is about creating attractions that count.

“We are in the business of fun. Many theme park investors don’t understand this and think it is about creating a monument. To us, the fun is measured in the number of smiles per hour. That is something I have specialised in over the past 33 years. So whenever we design something, we would start thinking how many times this person will smile per hour when playing the attraction. It is not about the monument, but how much fun your attractions provide that counts.”

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