Financial Services Association, May 21 (Reporter Lu Tingting) After a long period of preparation, Haiqi Group (603069.SH) has made new progress in the acquisition of Sea Travel Duty Free.

On the evening of the 20th, Haiqi Group announced that it plans to acquire 100% of HNA's tax-free shares for 2,037 billion yuan. A CIFA reporter noticed that after many adjustments, this price is less than half of its initial valuation of 5.02 billion yuan. The adjusted transaction plan was approved by the Hainan Provincial State-owned Assets Administration Commission and reviewed by the Shareholders' Meeting.

Zhou Mingqi, founder of Jingjian Think Tank, told the Financial Federation reporter that the asset valuation reduction (of the target company) is mainly related to the overall market environment. The share price increase of relevant duty-free concept stocks was too high during the epidemic, and as the impact of the epidemic was lifted, the entire duty-free industry is bound to return to valuation.

The latest purchase price has been “cut short” compared to the initial valuation

According to the “Report on Issuance of Shares and Payment of Cash to Purchase Assets and Raise Supporting Funds and Related Transactions (Draft)” issued by Haiqi Group, the company plans to issue shares to Hainan Tourism Investment and Development Co., Ltd. (hereinafter: Hainan Travel Investment) and pay cash to purchase 100% of its HNA duty-free shares (mainly engaged in duty-free retail business), with a transaction price of 2,037 billion yuan. At the same time, the company plans to raise no more than 738 million yuan in supporting capital.

According to information, this acquisition is related to the transaction. Hainan Travel Investment is the indirect controlling shareholder of Haiqi Group. It controls 42.50% of Haiqi Group's shares through Haiqi Holdings. After the transaction is completed, Hainan Travel Investment will directly and indirectly control 59.68% of the company's shares.

A Financial Services Association reporter read through previous announcements and learned that the Haiqi Group began planning the acquisition of the Sea Travel Duty Free as early as May 2022. The “Draft” disclosed in August of the same year showed that the initial valuation of the sea travel tax exemption was 5.0 billion yuan; in April 2023, the purchase price was reduced to 4.08 billion yuan, and now it has been lowered again to 2,037 billion yuan.

The purchase price has been repeatedly reduced, and the reasons revealed in Haiqi Group's related announcements mentioned many times that “the target company's operating performance falls short of expectations.”

On February 27 of this year, Haiqi Group announced that due to the performance of the target company falling short of expectations, the asset valuation range for Sea Travel Duty Free is 1.8 billion to 2.5 billion yuan, and the transaction price adjustment range is more than 20%, constituting a major adjustment to the transaction plan. However, in order to avoid abnormal stock price fluctuations, trading of the company's shares was suspended from February 28, and trading resumed from the opening of the market on March 6 (Wednesday).

The performance of the tax exemption for sea travel was poor. The problem may be in the fourth quarter of the traditional peak season. According to Haikou Customs statistics, in 2023, the Hainan outlying islands duty-free market had sales of 43.76 billion yuan, an increase of 25.21% over the previous year. Haiqi Group mentioned in the “Draft” that the first quarter accounted for 38.55% of the report card; sales declined sharply in November and December 2023, and the fourth quarter did not see the small peak season that would occur in historical years; to a certain extent, the peak season was not strong. Sea Travel Duty Free sales are highly consistent with industry trends. Affected by industry factors, Sea Travel Duty Free's performance in November and December 2023 also fell short of expectations.

According to the announcement, Sea Travel Duty Free's revenue in 2023 was 3,940 billion yuan, with a completion rate of 78.67% of the forecast value of 5.08 billion yuan; net book profit was 139 million yuan, accounting for 70.25% of the estimated net profit for the whole year. Excluding exchange gains and losses, the net profit completion rate was 89.10%, and the overall performance was lower than expected.

Judging from the Haiqi Group's own situation, the operating performance is unspeakably optimistic. From 2020 to 2023, the company achieved net profit of -101 million yuan, -0.72 billion yuan, 0.39 billion yuan, and -0.69 billion yuan respectively; the corresponding deducted non-net profit was -133 million yuan, -89 million yuan, -108 million yuan, and -09 billion yuan, respectively, with losses for four consecutive years.

Caught in a quagmire of losses, the Haiqi Group may hope to restructure and get out of trouble. The Haiqi Group said that after the above transaction is completed, the company's main business will shift from traditional passenger transport business to a comprehensive duty-free commercial business to achieve leapfrog development in tourism transportation and tourism business, so the company's net profit attributable to the parent company will further increase.

According to Zhou Mingqi, domestic tax exemption is still a partial monopoly business; only a few companies hold duty-free licenses on the outlying islands. Through this restructuring, high-quality tax-free assets for sea travel can be listed relatively quickly. It is expected that financial support will be obtained through financing and other channels in the future, thereby making better use of duty-free licenses and more domestic business layout. For the Haiqi Group, it can also achieve business transformation and accelerate the pace of development.

Prospects for transforming duty-free businesses to be examined

From a long-term perspective, can the transition to tax exemption become the key to HAIC Group's breakthrough development?

Previously, due to the impact of the restructuring matters mentioned above and stimulated by the tax exemption concept, Haiqi Group's stock price had risen and stopped for several consecutive trading days, and at one point the stock price had surged 3 times. However, today the duty-free industry is also facing competitive pressure from many sides.

In recent years, as restrictions on entry into the duty-free market have been relaxed, the number of competitors who have obtained duty-free licenses or potential competitors applying for duty-free licenses has gradually increased. Other leading global travel retail operators are also planning to enter China's duty-free industry, entering the Chinese duty-free market by opening new duty-free shops or establishing strategic partnerships with local duty-free companies.

The Haiqi Group issued a risk warning in the relevant “Draft”. As competitors and potential competitors in the Chinese duty-free market increase, the target company's market share and operating performance will be affected to a certain extent. Also, as the overseas travel market gradually recovers, the outlying islands duty-free market may be under certain consumer diversion pressure. As a participant in the outlying islands duty-free market industry, the target company's future business performance is closely related to the outlying island duty-free consumer market environment, drawing the attention of investors.

“The expansion of the third batch of outbound travel destinations had a certain impact on the outlying islands duty-free market sales in the fourth quarter of last year.” Zhou Mingqi told reporters that the third batch of outbound travel destinations announced in August 2023 has basically been liberalized during the National Day Golden Week. Outbound passenger flow has increased significantly, and Hainan's duty-free business has been diverted from overseas destinations. At the same time, based on the current overall economic situation and consumption situation, social consumption is relatively weak, and the luxury consumer goods market is shrinking. Consumers are generally sensitive to the price of duty-free goods, and even seek high cost performance by comparing prices from many parties. In this context, domestic duty-free operators should adjust their business strategies in terms of product prices and market development to cope with changes in the duty-free consumer market after the epidemic.

A Financial Services Association reporter also noticed that from August 29, 2022 to March 5 this year, Haiqi Group signed the “Supplementary Agreement on Issuance of Shares and Payment of Cash to Purchase Assets” with Hainan Travel Investment five times. Hainan Travel Investment promised the net profit amount of the target company. Compared with the last two performance promises, the target value has been drastically reduced. Furthermore, in October of last year, the performance commitment period for sea travel tax exemption was extended by 1 year because the Huating project related to the sea travel tax exemption fell short of expectations and considering the uncertain impact of the future customs clearance policy in Hainan on profitability.

According to the announcement in October last year, Hainan Travel Investment promised that the target company's net profit for the year 2023 to 2025 will not be less than 198 million yuan, 326 million yuan, and 480 million yuan respectively; if the performance commitment period is postponed to 2026, the net profit for 2026 will not be less than 587 million yuan. According to last night's announcement, Hainan Travel Investment promised that the target company's net profit for 2024 to 2026 (excluding the Huating project) will not be less than 161 million yuan, 182 million yuan, and 202 million yuan respectively; if the performance commitment period is postponed to 2027, the net profit for 2027 will not be less than 221 million yuan.