China Tourism Group Duty Free Corporation Limited(601888) (601888)
Event: the company announced that the company signed an equity acquisition agreement with the wholly-owned subsidiary of the controlling shareholder, China Travel assets, and planned to acquire 100% equity of the Hong Kong China Travel assets company in cash by means of non-public agreement transfer, with a transaction amount of RMB 126 million.
The acquisition solved the problem of horizontal competition between the company and its controlling shareholders and improved the layout of the company in terms of tax exemption in the city. The acquisition is to complete the previous commitment of controlling shareholders to solve horizontal competition. Hong Kong China Travel assets company has the qualification to operate duty-free foreign exchange commodities, and can operate foreign exchange duty-free shops, that is, local duty-free shops for supplementary purchase in China. As of September 30, 2021, the total assets of HKCTS are 13.537 million yuan, the total liabilities are 1.5559 million yuan and the net assets are 11.9811 million yuan. From January to September 2021, the company realized an operating income of 81400 yuan and a net loss of 985400 yuan. This transaction will help China tax exemption further integrate tax-free resources, consolidate and improve the company’s tax-free business layout.
Continue to pay attention to the follow-up policy opening. On the one hand, islanders’ duty-free landing is imminent, which will jointly drive the development of Hainan duty-free market with outlying islands. The implementation of the islanders’ tax exemption policy and the optimization of the types, prices and quality of tax-free goods and services on outlying islands in the future will bring greater growth space for islanders’ tax exemption and outlying island tax exemption, and drive the vigorous development of Hainan tax-free market. It is expected that the scale of Hainan islanders’ tax-free market is expected to exceed 100 billion yuan. On the other hand, in the long run, it is expected that the impact of the epidemic will be gradually eliminated, the international passenger flow is expected to recover, and the city tax exemption will still be implemented steadily.
Investment suggestion: on the one hand, the company will accelerate the expansion of Sanya duty-free city and the construction of Haikou international duty-free City, on the other hand, it will accelerate the introduction of top luxury. In the future, it will further consolidate its leading position in global duty-free, and its supply chain and location advantages are expected to be further highlighted. We expect the company’s performance in 21-22 years to be RMB 11 / 15 billion, and the current share price corresponding to PE is 40x / 29x respectively, which is firmly recommended.
Risk warning: there is a risk of tax exemption policy change, tax exemption pattern competition intensifies, new project construction is less than expected, and local epidemic situations are repeated
