China Tourism Group Duty Free Corporation Limited(601888) (601888)
Conclusions and recommendations:
Event summary:
It is announced that in order to solve the problem of competition and improve competitiveness, the company plans to acquire 100% equity of China Hong Kong China Travel asset management company (hereinafter referred to as “Hong Kong China Travel”) a wholly-owned subsidiary of the controlling shareholder at the price of 126 million cash.
The main businesses of CTS include duty-free goods sales, pre packaged food sales, property management, etc. in the first three quarters of 2019-2021, the revenue was 3.02 million, 969000 and 81400 respectively, and the net profit attributable to the parent company was 606000, – 145000 and – 985000 respectively. As of the end of the third quarter, the total net assets were 11.9811 million yuan, and the acquisition premium was mainly the value of the commercial buildings and the parcel of land owned by the target company. HKCTS has the qualification to operate duty-free foreign exchange commodities, You can set up local duty-free shops for supplementary purchase in China (the same type as the license held by China export service. At present, the tax-free amount of such duty-free shops is 5000 yuan). According to the previously disclosed information, at present, they mainly open stores in Harbin (that is, the overseas Chinese duty-free shop is currently closed). After the completion of this transaction, first, it will help to solve the problem of competition within the group, and second, it will improve the layout of the company’s license. China free will become the only fully licensed duty-free product sales company in China. The complementary effect of entry-exit business is expected to deepen, adding help to improve the post epidemic market layout and improve the overall profitability.
At present, due to the covid-19 epidemic, the tax exemption of outlying islands is still the main source of income of the company. According to Haikou customs, the tax-free sales amount of outlying islands in the first three quarters was 35.5 billion yuan, an increase of 121% over the same period last year (the same below); 5.13 million shopping passengers, an increase of 84.5%; 50.73 million duty-free items were sold, an increase of 158%. Considering the epidemic situation in autumn and winter and e-commerce activities, tax-free sales may be impacted, but the overall prosperity is expected to be considerable. In addition, the company previously announced that considering the impact of the epidemic on the global economy and the downturn of the capital market, the company suspended the process of H-share issuance and listing, and the subsequent arrangements will be determined according to the market conditions.
The company continued to promote long-term strategic layout during the epidemic period. In addition to improving the coverage of duty-free shops in Hainan outlying islands and building supporting businesses, with the expansion of scale, the company’s bargaining power with upstream suppliers has improved, and has successively established cooperative relations with more than 1000 well-known brands. Since the promotion of the new tax-free policy for outlying islands, many luxury brands have settled in. The company also pays attention to digital construction, gathers 20 million free members, and strengthens the flow advantage by gradually improving member services. In addition, the city’s duty-free shops will be arranged in advance. In the future, with the improvement of the epidemic situation, it is expected to improve profits through linkage with airport duty-free shops.
Considering the autumn and winter epidemic, the profit forecast is slightly reduced. It is expected that the company will realize net profits of 10.8 billion and 14.6 billion respectively from 2021 to 2022, with a year-on-year increase of 75.5% and 35.5% respectively, EPS of 5.52 yuan and 7.48 yuan respectively, and the current share price corresponding to PE is 41 times and 30 times respectively, maintaining the “buy” investment proposal.
Risk tip: repeated outbreaks in China and increased competition on outlying islands
