China Tourism Group Duty Free Corporation Limited(601888) (601888)
On December 14, the company announced that it planned to spend 126 million cash to acquire 100% equity of China Hong Kong China Travel Asset Management Co., Ltd. (hereinafter referred to as “Hong Kong China Travel asset company”) by means of non-public agreement transfer. After the acquisition, Hong Kong China Travel asset company will become a wholly-owned subsidiary of the company, which is expected to further promote the development of the company’s tax-free business and improve its competitiveness.
Key points supporting rating
Consolidate the moat of duty-free business and solve horizontal competition. At present, the company does not have a foreign exchange duty-free shop license, that is, a local duty-free shop purchased back home. The business qualification of duty-free foreign exchange commodities owned by Hong Kong China travel will enable the company to further improve the company’s duty-free license. Previously, Hong Kong China Travel asset company could participate in the bidding of tax-free operation right nationwide. After the completion of this acquisition, Hong Kong China travel will become a wholly-owned subsidiary of the company. The problem of horizontal competition is expected to be solved and the leading position of the company may be further consolidated.
The local tax exemption layout of China tax exemption may be further improved. Compared with the airport duty-free shops, the discount points of the duty-free shops in the city are lower, and they are benchmarked with large shopping malls, which has regional advantages. The company is actively making efforts to layout the tax-free channels in the city. By the end of 2020, the company has resumed the city duty-free stores in Beijing, Shanghai and other places, and opened and operated four City duty-free stores in Hong Kong, China and Cambodia. In addition, the governments of Wuhan, Shanghai and other places are also actively discussing relevant matters with the company. The new acquisition targets include the city’s duty-free stores open to Chinese people, which is expected to further open up the tax-free consumption scene for the company’s original tax-free layout.
Waiting for the country to reopen, international tourism is expected to contribute to traffic. As of December 14, the total amount of vaccination in China has reached 2.63 billion doses. At the same time, China is vigorously promoting enhanced needle injection. According to the first financial report, Kexing enhanced needle test shows that the positive rate of neutralizing omecron antibody is as high as 94%. Overseas countries have gradually increased their recognition of China’s vaccine, and most popular tourist countries have been opened to Chinese tourists. Although the epidemic situation in China has been repeated recently, the provinces and cities where the epidemic situation has occurred have timely flow control and orderly management, and the reopening of the country is just around the corner, which may benefit the company’s airports, ports, urban tax exemption and other channels.
Valuation
As the policy of duty-free shops in the city has not been implemented and international tourism has not been opened yet, the follow-up development still needs to wait and see, so the original forecast of the company is temporarily maintained. It is predicted that the EPS of the company in 21-23 years is 5.99/8.18/10.92 yuan, and the corresponding P / E ratio is 37.3/27.3/20.5 times respectively, maintaining the buy rating.
Main risks of rating
The opening of the country diverted sales from outlying islands, intensified competition in the duty-free market, and the implementation of the policy was less than expected.
