HK/China Equity Long-Short

Osbert Tang, CFA

Equity Capital Markets

China Tourism Group Duty Free Corp Ltd / Equity Capital Markets

<ul>
<li>At the indicated price range, or 24.8-28.6x PER for FY22F and 16.7-19.2x for FY23F, the H-share IPO of <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 (601888 CH)</a> is not attractive enough. </li>
<li>2Q22 net profit is worse than it appears. Recent Sanya lockdown has wiped off half of the summer peak season which may even negatively affect demand during Golden Week.</li>
<li>Consensus forecasts are too optimistic and there may be another 15% downside. Given current macroenvironment, market volatility and earnings uncertainty, risk outweighs return even at the low-end of price range.</li>
</ul>


At the indicated price range, or 24.8-28.6x PER for FY22F and 16.7-19.2x for FY23F, the H-share IPO of China Tourism Group Duty Free Corp (601888 CH) is not attractive enough. 
2Q22 net profit is worse than it appears. Recent Sanya lockdown has wiped off half of the summer peak season which may even negatively affect demand during Golden Week.
Consensus forecasts are too optimistic and there may be another 15% downside. Given current macroenvironment, market volatility and earnings uncertainty, risk outweighs return even at the low-end of price range.


CTG Duty Free (601888 CH) H-Share IPO: 2Q22/Outlook Updates and Valuation Views

<ul>
<li>
<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> has revived its H-share IPO plan by re-submitting the Application Proof to the Hong Kong Stock Exchange on 1 Jul. </li>
<li>While there is no material changes in the Proof, weaker 1Q22 result, negative impact of pandemic and new agreements signed with Guangzhou Airport are recent developments that should be noted.</li>
<li>We think CDFC's H-shares, based on similar valuation before cancellation of the previous IPO plan, look less attractive given the sharp pull back of its peers in Hong Kong. </li>
</ul>



China Tourism Group Duty Free Corp Ltd (601888 CH) has revived its H-share IPO plan by re-submitting the Application Proof to the Hong Kong Stock Exchange on 1 Jul. 
While there is no material changes in the Proof, weaker 1Q22 result, negative impact of pandemic and new agreements signed with Guangzhou Airport are recent developments that should be noted.
We think CDFC's H-shares, based on similar valuation before cancellation of the previous IPO plan, look less attractive given the sharp pull back of its peers in Hong Kong. 


CTG Duty Free (601888 CH) Pre-IPO: Revival of H-Share IPO

<ul>
<li>
<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> has received approval from CSRC for H-share issue and the HK hearing may come as early as Tuesday.</li>
<li>There is report that funds raised will scale down to US$5bn, from US$7bn previously, and this will mean a price of about HK$200, or 26% discount to the A-shares.</li>
<li>Valuations (29.3x PER for FY21 and 22x for FY22) are not too stretched, but following a weak 3Q21, it may need a cheaper level to ensure attractive debut.  </li>
</ul>



China Tourism Group Duty Free Corp Ltd (601888 CH) has received approval from CSRC for H-share issue and the HK hearing may come as early as Tuesday.
There is report that funds raised will scale down to US$5bn, from US$7bn previously, and this will mean a price of about HK$200, or 26% discount to the A-shares.
Valuations (29.3x PER for FY21 and 22x for FY22) are not too stretched, but following a weak 3Q21, it may need a cheaper level to ensure attractive debut.  


CTG Duty Free (601888 CH): Green Light for H-Share IPO and Updated View on Valuation

Equity Bottom-Up

China Tourism Group Duty Free Corp Ltd / Equity Bottom-Up

We have expressed our positive view on <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> in various Insights previously. In this Insight, we look at the proposed H-share IPO from the perspective of investors who do not know it well. For seasoned investors in this name, this Insight serves as a summary of our views and provides background details on the proposed IPO.Fundamentally speaking, the key positives for CTG Duty Free are: 1.) absolute leadership in China's duty free market, 2.) encouraging growth outlook, and 3.) solid profitability and financial position. Key negatives are: 1.) policy risk and rising competition, 2.) concern on payback of new projects, and 3.) risk of overseas expansion. If the IPO is being priced at the current average H-A discount, it will be on 32.7x FY21F PER, we see this not expensive relative to the premium retailers listed in Hong Kong.

We have expressed our positive view on China Tourism Group Duty Free Corp Ltd (601888 CH) in various Insights previously. In this Insight, we look at the proposed H-share IPO from the perspective of investors who do not know it well. For seasoned investors in this name, this Insight serves as a summary of our views and provides background details on the proposed IPO.Fundamentally speaking, the key positives for CTG Duty Free are: 1.) absolute leadership in China's duty free market, 2.) encouraging growth outlook, and 3.) solid profitability and financial position. Key negatives are: 1.) policy risk and rising competition, 2.) concern on payback of new projects, and 3.) risk of overseas expansion. If the IPO is being priced at the current average H-A discount, it will be on 32.7x FY21F PER, we see this not expensive relative to the premium retailers listed in Hong Kong. 

CTG Duty Free (601888 CH) H-Share Pre-IPO: Fundamentally Speaking

The approvals of more players in the Hainan duty free market at end-2020 is likely to pose challenge to <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> only in the long term, given the weaker relative competitiveness of the new entrants, CTG Duty Free's established strengths and the sustained positive growth in the overall market. Despite so, we see a trend of rise in competition in China's duty free industry, which is a threat that it cannot overlook in the long run.With the Dec (up to 28th) duty free sales value maintained a solid growth of over 150% YoY, the sustained market growth will offer CTG Duty Free a near-term buffer to competition. The low base in 1H20 as well as the limited appetite of overseas travel due to new coronavirus strains will continue to be positive factors for the company at least in the next six months.

The approvals of more players in the Hainan duty free market at end-2020 is likely to pose challenge to China Tourism Group Duty Free Corp Ltd (601888 CH) only in the long term, given the weaker relative competitiveness of the new entrants, CTG Duty Free's established strengths and the sustained positive growth in the overall market. Despite so, we see a trend of rise in competition in China's duty free industry, which is a threat that it cannot overlook in the long run.With the Dec (up to 28th) duty free sales value maintained a solid growth of over 150% YoY, the sustained market growth will offer CTG Duty Free a near-term buffer to competition. The low base in 1H20 as well as the limited appetite of overseas travel due to new coronavirus strains will continue to be positive factors for the company at least in the next six months.

CTG Duty Free Corp (601888 CH): Facing More Competition in a Rapidly Growing Market

China

Wangfujing Group Co., Ltd. owns and operates department stores in Beijing, Guangzhou, Chengdu, Wuhan, and other cities in China.  The Company also develops residential real estate.

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Wangfujing Group Co., Ltd. (600859 CH)

CTG Duty Free Corp (601888 CH): Facing More Competition in a Rapidly Growing Market

New players to Hainan duty free market will not bring near-term impact to CTG Duty Free's leadership, but can be long-term challenges. However,...

Osbert Tang, CFA

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CTG Duty Free (601888 CH) H-Share IPO: 2Q22/Outlook Updates and Valuation Views

We consider the indicated price range not attractive enough given current macroenvironment, market volatility and earnings uncertainty. Risk-return...

Osbert Tang, CFA

CTG Duty Free (601888 CH) Pre-IPO: Revival of H-Share IPO

CDFC re-activated its H-share IPO by refreshing its Application Proof. If the issue details are unchanged, it is less attractive than previously...

Osbert Tang, CFA

CTG Duty Free (601888 CH): Green Light for H-Share IPO and Updated View on Valuation

CTG Duty Free may need to sweeten its upcoming IPO with cheaper multiples especially following a weak 3Q21 result and the pullback in share price...

Osbert Tang, CFA

CTG Duty Free (601888 CH) H-Share Pre-IPO: Fundamentally Speaking

In relation to CTG Duty Free's H-share IPO, key positives are: 1.) absolute leadership in China's duty free market, 2.) encouraging growth outlook,...

Osbert Tang, CFA

CTG Duty Free Corp (601888 CH): Facing More Competition in a Rapidly Growing Market

New players to Hainan duty free market will not bring near-term impact to CTG Duty Free's leadership, but can be long-term challenges. However,...

Osbert Tang, CFA