HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Various statistics suggested that China's tourism and hospitality industry has staged a significant recovery during the 2024 CNY holidays, with traffic surging high double-digit.</li>
<li>While consumers are more cautious about retail product spending, they are willing to spend more on traveling. Such a trend will continue to bode well for the sector.</li>
<li>We like OTAs including <a href="https://www.smartkarma.com/entities/tongcheng-travel-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27363:1" rel="noopener">Tongcheng Travel (780 HK)</a> and <a href="https://www.smartkarma.com/entities/trip-com-group-ltd-23a341d0-4f63-4175-a8c5-ee990906cacd" target="_blank" data-smartkarma-citation="entities:36424:1" rel="noopener">Trip.com (9961 HK)</a> despite their YTD surge in share prices. Meanwhile, <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> stays as the top pick.</li>
</ul>


Various statistics suggested that China's tourism and hospitality industry has staged a significant recovery during the 2024 CNY holidays, with traffic surging high double-digit.
While consumers are more cautious about retail product spending, they are willing to spend more on traveling. Such a trend will continue to bode well for the sector.
We like OTAs including Tongcheng Travel (780 HK) and Trip.com (9961 HK) despite their YTD surge in share prices. Meanwhile, Air China Ltd (H) (753 HK) stays as the top pick.


China Tourism and Hospitality Industry: Roundup of a Solid CNY

Equity Bottom-Up

Tongcheng Travel Holdings  / Equity Bottom-Up

<ul>
<li>While adjusted net profit of <a href="https://www.smartkarma.com/entities/tongcheng-elong-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27363:1" rel="noopener">Tongcheng Travel Holdings Ltd (780 HK)</a> plummeted in 4Q22, the positive momentum in 1Q23 as revealed supports a sharp recovery in FY23.</li>
<li>Its huge exposure to lower-tier cities will fuel outlook while increase in monetisation will support profitability rebound. Success at Blackwhale membership program is another growth engine.  </li>
<li>Management is confident that revenue growth and better efficiency will lead the return of FY23 margin to pre-pandemic levels. Net cash position (12% of share price) is an added strength. </li>
</ul>


While adjusted net profit of Tongcheng Travel Holdings Ltd (780 HK) plummeted in 4Q22, the positive momentum in 1Q23 as revealed supports a sharp recovery in FY23.
Its huge exposure to lower-tier cities will fuel outlook while increase in monetisation will support profitability rebound. Success at Blackwhale membership program is another growth engine.  
Management is confident that revenue growth and better efficiency will lead the return of FY23 margin to pre-pandemic levels. Net cash position (12% of share price) is an added strength. 


Tongcheng Travel (780 HK): Best for Capturing Lower-Tier Cities' Growth

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Event-Driven

<ul>
<li>Without the buyback, it’s difficult to obtain reasonable market pricing by simply transferring the equity of Fosun Tourism or the equity of core assets, which is detrimental to Fosun Group.  </li>
<li>To maximize returns, a wiser approach is to privatize Fosun Tourism first, then at a higher valuation level to spin off, sell, relist, attract strategic investment to “rationalize” the valuation.</li>
<li>Heavy assets of Taicang/Lijiang projects would be sold. For core assets Club Med/Atlantis, the future plans could be different. It's necessary to take a look at the Share Alternative Option.</li>
</ul>


Without the buyback, it’s difficult to obtain reasonable market pricing by simply transferring the equity of Fosun Tourism or the equity of core assets, which is detrimental to Fosun Group.  
To maximize returns, a wiser approach is to privatize Fosun Tourism first, then at a higher valuation level to spin off, sell, relist, attract strategic investment to “rationalize” the valuation.
Heavy assets of Taicang/Lijiang projects would be sold. For core assets Club Med/Atlantis, the future plans could be different. It's necessary to take a look at the Share Alternative Option.


Fosun Tourism (1992.HK) - The Logic Behind the Share Buyback and the Outlook

<ul>
<li>Fosun Tourism has emerged from its difficulties and started an upward trend.If it remains listed, it’s only a matter of time before its share price returns to the IPO price.</li>
<li>Temasek was once in talks to buy a minority stake in Club Med from Fosun International for €500 million, based on which reasonable valuation for Fosun Tourism is RMB12.6 billion.</li>
<li>Fosun has continued its style- When performance recovery hasn’t been reflected in stock price, it’s the right time to privatize valuable assets at cheap price. A share alternative is expected.</li>
</ul>


Fosun Tourism has emerged from its difficulties and started an upward trend.If it remains listed, it’s only a matter of time before its share price returns to the IPO price.
Temasek was once in talks to buy a minority stake in Club Med from Fosun International for €500 million, based on which reasonable valuation for Fosun Tourism is RMB12.6 billion.
Fosun has continued its style- When performance recovery hasn’t been reflected in stock price, it’s the right time to privatize valuable assets at cheap price. A share alternative is expected.


Fosun Tourism (1992.HK) Privatization - The Cancellation Price Is Not Good Enough

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<ul>
<li>On the 31sr July, Chinese property play <strong><a href="https://www.smartkarma.com/entities/joy-city-property-ltd" target="_blank" data-smartkarma-citation="entities:10958:1" rel="noopener">Joy City (207 HK)</a></strong> announced a Scheme buyback, @ $0.62/share (declared final), a 67.57% premium; but arguably a 158% premium to undisturbed.</li>
<li>Yes, this was a ~70% discount to NAV. However, Joy City had traded at P/B of 0.14x, on average, the past five years. Earnings have trended south in that timeframe.</li>
<li>
<a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2025/1023/2025102300920.pdf" target="_blank" rel="noopener"><strong>The Scheme Document's now out</strong></a>, with a Court Meeting on the 17th November and expected payment around the 4th December. The IFA (Somerley) says "fair &amp; reasonable". It probably is.</li>
</ul>


On the 31sr July, Chinese property play Joy City (207 HK) announced a Scheme buyback, @ $0.62/share (declared final), a 67.57% premium; but arguably a 158% premium to undisturbed.
Yes, this was a ~70% discount to NAV. However, Joy City had traded at P/B of 0.14x, on average, the past five years. Earnings have trended south in that timeframe.

The Scheme Document's now out, with a Court Meeting on the 17th November and expected payment around the 4th December. The IFA (Somerley) says "fair &amp; reasonable". It probably is.


Joy City (207 HK): 17th November Vote On COFCO's Offer

Hong Kong

Fosun Tourism Group operates as a leisure focused integrated tourism group. The Company provides resorts management, tourism destinations development, and other related services. Fosun Tourism Group offers its services worldwide.

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Fosun Tourism (1992 HK)

China Tourism and Hospitality Industry: Roundup of a Solid CNY

China's tourism industry sees a strong recovery during the 2024 CNY holidays, with a high double-digit traffic surge. OTAs like Tongcheng and...

Osbert Tang, CFA

Tongcheng Travel (780 HK): Best for Capturing Lower-Tier Cities' Growth

Positive business momentum in 1Q23 supports a sharp recovery in FY23. Huge exposure to lower-tier cities and increase in monetisation will support...

Osbert Tang, CFA