2022 results are in line with previous profit warnings
The company announced 2022 results: operating income of HK$3,032 million, -17% year over year; net loss to mother of HK$356 million, turning profit into a loss over the same period in 2021 (net profit to mother of HK$174 million), mainly due to the negative impact of the COVID-19 pandemic and the recording of non-recurring revenue from real estate carry-over and sale of travel agency businesses in 2021. The results are in line with previous profit warnings.
By business sector: 1) Tourist attractions and related businesses: -50% of revenue from theme parks, recovering to 24% in 2019, accounting for loss of HK$66 million, up loss year on year; revenue from natural and cultural attractions -45%, accounting for loss of HK$38 million, turning loss year on year; leisure resort revenue -8% year over year, profit attributable to -70% YoY to HK$140 million (profit mainly contributed by tourist real estate business), excluding tourist real estate revenue recovered to 68% in 2019; revenue from tourist attractions supporting services changed to -2% YoY loss. 2) Travel documents and related business: When Hong Kong did not clear customs and demand for documents was not fully restored in '22, revenue was +14% year-on-year, accounting for a loss of HK$400,000 (year-on-year loss reduction). 3) Hotels:
Revenue was +7% year over year, recovering to 66% in 2019, and attributable profit of HK$17 million, turning a loss into a profit. Affected by the pandemic, Metropark Hotel Beijing's revenue was -28% year over year, while the revenue of Metropark Hotels in Causeway Bay and Kowloon increased and became profitable. 4) Passenger transportation: Due to the impact of the epidemic, all cross-border bus and Hong Kong and Macau passenger ship services were suspended. Revenue was -33% year-on-year, accounting for a loss of HK$169 million (year-on-year loss reduction).
Development trends
Businesses in Hong Kong, Macau and the Mainland have been recovering steadily. 1) Hong Kong and Macau business: Since Hong Kong customs clearance, demand for Hong Kong and Macau business (passenger transport, travel document processing and hotels) has been released: Hong Kong Tourism Board 3/25 indicated that the number of mainland travelers entering the previous week had returned to 45% before the epidemic, and the number of visitors to Hong Kong on May 1st is expected to reach about 50% before the epidemic; the company's hotel revenue recovered to about 66% in the same period in January '19. Furthermore, the company increased its shareholding in Sindh China Travel to 50% in 2020 to further increase the market share of the passenger transport business in the Greater Bay Area. The Hong Kong and Macau business contributed more than 50% of the company's profits before the pandemic. It is recommended to focus on the resilience of Hong Kong and Macau business recovery after customs clearance. 2) Mainland business: Revenue from the company's theme parks, natural and cultural attractions, and leisure resorts recovered to 72%, 263%, and 69% respectively in the same period in '19. Among them, boutique projects performed well (Shapotou Scenic Area accounted for 50% of sales in the past three years, and Detian Scenic Area's share of secondary sales rose from 3% at the beginning of the project to 70% at present). It is recommended to focus on the resilience of mainland scenic spots during the peak tourist season in the second and third quarters.
Combine priorities to create quality products, and focus on project expansion and asset revitalization. In the scenic area business, the company has moved from operation to investment, integrated resources from leading destinations, and combined efforts to create quality products. It has owned and operated 46 high-quality scenic spots in China (13 or 16 5A/4A scenic spots respectively); and has built Shapotou International Tourist Resort (Desert Legend Phase 1 is expected to be put into operation this summer) and the Ambala Island resort project in the Maldives, focusing on stock growth and new project development. At the same time, we will continue to revitalize and optimize existing assets: Hung Hom Hotel (scheduled to start trial operation in 1Q24), Shenzhen China Travel Investment Tower (pre-sale scheduled to begin at the end of 23), etc.
Profit forecasting and valuation
Maintain the 23-year profit forecast of HK$250 million and the 24-year profit forecast of HK$350 million. The current corresponds to 37/26 times 2023/2024 P/E. Maintaining a neutral rating and target price of HK$1.8, corresponding 40/28 times the 2023/2024 P/E, with an upward margin of 8%.
risks
The recovery of Hong Kong and Macau business and the recovery of mainland scenic spot business fell short of expectations.