HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>Given significant presence in China, <a href="https://www.smartkarma.com/entities/shangri-la-asia-ltd" target="_blank" data-smartkarma-citation="entities:19690:1" rel="noopener">Shangri-La Asia (69 HK)</a> is geared towards China's more accommodative COVID policy. The good thing is that the share price has not yet reflected this. </li>
<li>Over the next 12-18 months, SLA will first benefit from tourism recovery outside of China, and then followed by powerful rebound in China's inbound travelers, particularly the high-end business visitors.</li>
<li>The resurgence in long-absented business visitors should bring in higher room yield and F&amp;B revenue. It has minimal refinancing and liquidity risks and these make its near-trough 0/48x P/B unjustified. </li>
</ul>


Given significant presence in China, Shangri-La Asia (69 HK) is geared towards China's more accommodative COVID policy. The good thing is that the share price has not yet reflected this. 
Over the next 12-18 months, SLA will first benefit from tourism recovery outside of China, and then followed by powerful rebound in China's inbound travelers, particularly the high-end business visitors.
The resurgence in long-absented business visitors should bring in higher room yield and F&amp;B revenue. It has minimal refinancing and liquidity risks and these make its near-trough 0/48x P/B unjustified. 


Shangri-La Asia (69 HK): Let's Go, What Are You Waiting For?

China Travel International Investment Hong Kong / Equity Bottom-Up

China Travel International Investment Hong Kong

<ul>
<li>Share price of <a href="https://www.smartkarma.com/entities/china-travel-international-investment-hong-kong" target="_blank" data-smartkarma-citation="entities:3879:1" rel="noopener">China Travel International Investment Hong Kong (308 HK)</a> (CTII) rallied 23% in last 3 months and 81% from its trough, which has well reflected the FY21 turnaround.</li>
<li>Risk-Return profile looks less attractive as its P/B multiple of 0.56x only provides 14% upside to the historical average of 0.63x. In other words, safety margin has diminished. </li>
<li>Macro picture turned against CTII - weaker-than-expected CNY visitors in Shenzhen, escalating Omicron cases in Hong Kong and caution on domestic tourism outlook all point to a more challenging FY22.</li>
</ul>


Share price of China Travel International Investment Hong Kong (308 HK) (CTII) rallied 23% in last 3 months and 81% from its trough, which has well reflected the FY21 turnaround.
Risk-Return profile looks less attractive as its P/B multiple of 0.56x only provides 14% upside to the historical average of 0.63x. In other words, safety margin has diminished. 
Macro picture turned against CTII - weaker-than-expected CNY visitors in Shenzhen, escalating Omicron cases in Hong Kong and caution on domestic tourism outlook all point to a more challenging FY22.


China Travel Intl Inv (308 HK): The Fruit Has Ripened?

Thematic (Sector/Industry)

<ul>
<li>State Council's announcement of China 14th 5-year Tourism Industry Development Plan recently should see positive policies and supportive measures to be rolled out over the medium term. </li>
<li>
<a href="https://www.smartkarma.com/entities/fosun-tourism-group" target="_blank" data-smartkarma-citation="entities:27439:1" rel="noopener">Fosun Tourism (1992 HK)</a>, <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corp-ltd" target="_blank" data-smartkarma-citation="entities:12278:1" rel="noopener">China Tourism Group Duty Free Corp Ltd (601888 CH)</a>, <a href="https://www.smartkarma.com/entities/china-travel-international-investment-hong-kong" target="_blank" data-smartkarma-citation="entities:3879:1" rel="noopener">China Travel International Investment (308 HK)</a> and <a href="https://www.smartkarma.com/entities/haichang-ocean-park-holdings-ltd" target="_blank" data-smartkarma-citation="entities:11396:1" rel="noopener">Haichang Ocean Park (2255 HK)</a> are some key beneficiaries.</li>
<li>We believe <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> will benefit from the recovery of international air passenger as the Plan highlights the importance of promoting inbound/outbound tourism after the pandemic.</li>
</ul>


State Council's announcement of China 14th 5-year Tourism Industry Development Plan recently should see positive policies and supportive measures to be rolled out over the medium term. 

Fosun Tourism (1992 HK), China Tourism Group Duty Free Corp Ltd (601888 CH), China Travel International Investment (308 HK) and Haichang Ocean Park (2255 HK) are some key beneficiaries.
We believe Air China Ltd (H) (753 HK) will benefit from the recovery of international air passenger as the Plan highlights the importance of promoting inbound/outbound tourism after the pandemic.


Beneficiaries of China's 14th 5-Year Tourism Industry Development Plan

We regard <a href="https://www.smartkarma.com/entities/china-travel-international-investment-hong-kong" target="_blank" data-smartkarma-citation="entities:3879:1" rel="noopener">China Travel International Investment Hong Kong (308 HK)</a> (CTII) as an alternative play on the encouraging economic growth outlook at Qianhai and Hengqin, given its presence in the nearby cities of Shenzhen and Zhuhai with theme parks and leisure resorts. We also see its profitability to sustain improvement in 2H21, after a very successful narrow-down of losses in 1H21.CTII has made continuous efforts in optimising its assets by disposing of underperforming ones and acquiring value-enhancing ones. We expect such strategy will become fruitful in 2H21 with the removal of losses at Songshan Scenic Spot and travel agency and document business, and the addition of profit from Hangzhou New Century Senbo. CTII is a laggard in the tourism space with a cheap 0.4x 12-month forward P/B. Its net cash of HK$1.14/share now almost equals to its share price, meaning that the market is valuing its businesses at zero value - this is just overly conservative.

We regard China Travel International Investment Hong Kong (308 HK) (CTII) as an alternative play on the encouraging economic growth outlook at Qianhai and Hengqin, given its presence in the nearby cities of Shenzhen and Zhuhai with theme parks and leisure resorts. We also see its profitability to sustain improvement in 2H21, after a very successful narrow-down of losses in 1H21.CTII has made continuous efforts in optimising its assets by disposing of underperforming ones and acquiring value-enhancing ones. We expect such strategy will become fruitful in 2H21 with the removal of losses at Songshan Scenic Spot and travel agency and document business, and the addition of profit from Hangzhou New Century Senbo. CTII is a laggard in the tourism space with a cheap 0.4x 12-month forward P/B. Its net cash of HK$1.14/share now almost equals to its share price, meaning that the market is valuing its businesses at zero value - this is just overly conservative.  

China Travel Intl Inv (308 HK): Alternative Play on Supportive Policies to Qianhai and Hengqin?

<a href="https://www.smartkarma.com/entities/china-travel-international-investment-hong-kong" target="_blank" data-smartkarma-citation="entities:3879:1" rel="noopener">China Travel International Investment Hong Kong (308 HK)</a> (CTII) should see a good recovery in FY21, riding on the solid travel business as supported by the release of pent-up demand. Based on the anecdotal data for the Labour Day holidays, we think its tourist attractions segment, with presence spanning across many important travel spots in China, will likely lead a turnaround in 1H21, both in terms of HoH and YoY comparison.We also envisage that its hotel operations and passenger transportation will trim losses in FY21, as global vaccination rates increase and cross-border travel restrictions are gradually removed. Its hotels in Hong Kong have participated in staycation program and involved as quarantine hotel, which will both improve the cash flow of this business segment. We note that net cash amounted to 34.3% of CTII's current share price, providing ample room to comfortably move ahead on the recovery.

China Travel International Investment Hong Kong (308 HK) (CTII) should see a good recovery in FY21, riding on the solid travel business as supported by the release of pent-up demand. Based on the anecdotal data for the Labour Day holidays, we think its tourist attractions segment, with presence spanning across many important travel spots in China, will likely lead a turnaround in 1H21, both in terms of HoH and YoY comparison.We also envisage that its hotel operations and passenger transportation will trim losses in FY21, as global vaccination rates increase and cross-border travel restrictions are gradually removed. Its hotels in Hong Kong have participated in staycation program and involved as quarantine hotel, which will both improve the cash flow of this business segment. We note that net cash amounted to 34.3% of CTII's current share price, providing ample room to comfortably move ahead on the recovery. 

China Travel Intl Inv (308 HK): Poised for a Sustained Recovery

Hong Kong

China Travel International Investment Hong Kong Limited, through its subsidiaries, operates tourist attractions, golf clubs, hotels, and other travel related activities.  The Company also provides passenger transportation as well as freight forwarding and cargo services.

China Travel International Investment Hong Kong (308 HK)

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China Travel International Investment Hong Kong (308 HK)

Shangri-La Asia (69 HK): Let's Go, What Are You Waiting For?

Shangri-La Asia has benefited from China's domestic tourism recovery, and we expect this will be followed by better tourist flow outside of China...

Osbert Tang, CFA

China Travel Intl Inv (308 HK): The Fruit Has Ripened?

CTII has had a good rally in the last 6 months and has well reflected the FY21 turnaround. However, this has turned the risk-return profile less...

Osbert Tang, CFA

Beneficiaries of China's 14th 5-Year Tourism Industry Development Plan

China's 14th 5-year Tourism Development Plan are positive to many players in the tourism industry. We expect more favourable policies and...

Osbert Tang, CFA

China Travel Intl Inv (308 HK): Alternative Play on Supportive Policies to Qianhai and Hengqin?

CTII has good presence in Shenzhen and Zhuhai, and we see sustained recovery into 2H21. Its asset optimisation strategy will start to bear fruit as...

Osbert Tang, CFA

China Travel Intl Inv (308 HK): Poised for a Sustained Recovery

Good Labour Day holidays tourism traffic is supportive for the sustained recovery of CTII's tourist attraction segment. The growth in vaccination...

Osbert Tang, CFA

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