This week, the company issued the “Notice on Capital Increase to Wholly-owned Subsidiaries”, “Notice Concerning Controlling Shareholders' Proposed New Commitments to Avoid Competition in the Peer Industry”, and “Acquisition Report”. Various innovative measures may be beneficial to the company's long-term development and are expected to inject more growth potential into the company. We maintain our holdings increase rating.
Key points to support ratings
The capital of Lingnan Hotel was increased by 40 million yuan to resolve competition among peers and strengthen the hotel layout. On December 12, the company issued the “Notice on Capital Increase to Wholly-owned Subsidiaries”. The company plans to use its own capital to increase the capital of its wholly-owned subsidiary Lingnan Hotel by 40 million yuan. After the capital increase is completed, the registered capital of Lingnan Hotel will reach 50 million yuan. The revenue of Lingnan Hotel in the first three quarters of the year 23 reached 96% of the full year of 2022, and net profit from the mother's net profit reversed losses year-on-year. After this capital increase, it is conducive to promoting the development and export of the core brand of Lingnan Hotel, strengthening digital intelligence empowerment, optimizing the layout, and achieving the goals of large-scale development. Furthermore, on the same day, the company issued a “Notice on Controlling Shareholders' Proposed New Commitments to Avoid Competition in the Industry”. After Lingnan Group acquires 70% of the shares in Urban Hotels, Lingnan Group plans to entrust the management of Lingnan Hotel, a wholly-owned subsidiary of Lingnan Holdings, to fully entrust all of its acquired shares in Urban Hotels to Lingnan Hotels, a wholly-owned subsidiary of Lingnan Holdings.
Integrate business travel resources and optimize equity structure. On December 13, the company released the “Acquisition Report”. Lingnan Business Travel will transfer 45.12% of the shares of Lingnan Holdings directly held by Lingnan Group through the free transfer of state-owned property rights. Prior to the acquisition, Lingnan Business Travel indirectly held 60.99% of Lingnan Holdings's shares through Lingnan Group; after the acquisition, Lingnan Business Travel directly held 45.12% of Lingnan Holdings's shares and controlled a total of 60.99% of Lingnan Holdings's shares. The actual controllers of Lingnan Holdings before and after the acquisition were all the actual controllers of the Guangzhou Municipal State-owned Assets Administration Commission. The acquisition is expected to optimize the equity structure, further clarify the management and control levels of Lingnan Business Travel and Lingnan Holdings, make the equity relationship consistent with actual control, promote the establishment of a good corporate governance structure by Lingnan Holdings, and ensure that Lingnan Holdings meets regulatory requirements.
The benefits of the inbound and outbound business travel market are spreading frequently, and the restoration phase is expected to accelerate. Since December 1, after China implemented a unilateral visa-free policy for six countries, including France, Germany, Italy, etc., according to statistics from the National Immigration Bureau, the number of people entering the country concerned continued to rise from December 1 to 10. A total of 59,600 people from the six countries entered China. The average number of visitors per day increased by 42.07% compared to November 30, of which 44.14% came to China without a visa. Malaysia and Singapore are also showing benefits to the visa-free entry policy for Chinese personnel. Malaysia has implemented a visa-free policy, while Singapore has announced that it may launch a mutual exemption policy. Under the main tone of openness and easing, there is still room for further policy repair in the future. Furthermore, according to flight managers, in the last week (12.04-12.10), domestic airlines flew 5578 international flights, an increase of 4.2% over the previous month, returning to the level of 61.8% in '19, and the restoration is still ongoing.
valuations
The company has a broad business layout. After the acquisition is completed, the company's equity governance structure is expected to be optimized, or it may inject more growth potential into the company. We maintain the 23-25 EPS forecast of 0.13/0.37/0.42 yuan, and the corresponding price-earnings ratio is 81.7/28.1/25.1 times. Maintain an increase in holdings rating.
The main risks faced by ratings
The recovery of holiday travel falls short of expectations, consumer confidence has not recovered enough, and market competition has increased risks