Royal Caribbean Group: An Imperfect Delay: Reducing Ests/PT for Perfect Day Mexico Rejection

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Royal Caribbean Group: An Imperfect Delay: Reducing Ests/PT for Perfect Day Mexico Rejection

IdeaMprior. Our price target falls from $310 to $280, using our 15x target multiple.

What options does RCL have? RCL has stated it continues to believe in Mexico and

plans to re-engage stakeholders over the coming weeks, noting shared prosperity

through the development of essential environmental infrastructure, the creation of

thousands of local jobs, and community programs. We see two plausible paths to

recovery: a revised environmental application that satisfies SEMARNAT's concerns,

or the identification of alternative land in a less ecologically sensitive location (in

Mexico or elsewhere). Either option would lead to meaningful delays, likely taking a

project to 2029 or 2030 as the first full year of operation, outside the timeframe of

many investors. The $0.6bn estimated sunk cost on the project is also a

consideration, suggesting a write down risk, though the land itself retains value

including the working port of Costa Maya.

A broader risk to consider: Management has been explicit that Perfect Day Mexico,

combined with the Royal Beach Club Cozumel, is intended to "own the Texas

market" for Caribbean cruising. Texas is a materially larger drive-to-cruise market

than Florida but with a significantly lower penetration rate, and RCL had positioned

the Galveston homeport as the primary beneficiary of the destination's opening. It

targets 90% of its Caribbean guests visiting a private destination by 2028, up from

70% currently, with Perfect Day Mexico central to that goal. That target now looks

in jeopardy, and without Perfect Day Mexico, the itinerary proposition out of

Galveston is weakened. RCL has 6-7% capacity growth planned for both 2028 and