Rating:BUY (Initiation)
Share price (27 Aug): RMB7.57
Market Cap (RMBm): 6,078.7
Caissa benefits directly from an outbound travel market recovery and outlying island tax exemption policies. Its merger with Zhongxin Tourism unifies its outbound and domestic travel business, as it expands its duty-free and other businesses to maximize scale advantages. We initiate coverage with a BUY rating.
Results takeaways and segmental perspectives
1H21 revenue fell 35.33% yoy to RMB575m, with net profit at -RMB169m, down 43.74%. Affected by Covid-19, revenue and related cost decreased; as 1H20 revenue reflected normal operations pre-outbreak, revenue growth dropped significantly in 1H21. 1Q revenue fell 68.10% yoy to RMB240m, but 2Q21 revenue rose 145.39% to RMB335m; 1Q/2Q21 had net losses of RMB94m/75m, down 46.52%/40.39% yoy.
Revenue:1H21 revenue was RMB575m, a decrease of 35.33% yoy. The catering business generated RMB268m, up 42.65% yoy; tourism generated RMB239m, down 64.96% yoy; F&B was RMB44m, up 100%; system integration sales, information services and other revenue generated RMB24m, up 19.24%.
Profit and loss:1H21 gross profit was RMB121m, a decrease of 33.17% yoy; gross profit margin was 21.04%, down 0.68ppt, of which catering and services was 28.37%, up 0.53 ppt. In 1Q, gross profit margin was 18.68%, up 2.36ppt; in 2Q, gross profit margin was 22.73%, down 19.10ppt, mainly due to the high base in 2Q20. Total net loss was at RMB1.69bn, down 43.74% yoy, with a net loss margin of 29.43%, down 16.19ppt yoy.
Expenses: In 1H21, expense ratio was 54.94%, up 18.42ppt yoy.Sales: sales expenses in 1H came to RMB130m, a decrease of 24.95% yoy, and sales expense ratio was 22.51%, up 3.11ppt yoy. The main reason was C19: business recovered and sales investment declined substantially.Administrative: management expense was RMB120m in 1H21, up 36.23%, and management expenses ratio was 20.88%, up 10.97ppt yoy, mainly because comparative data in the same period last year did not include expenses of its newly acquired subsidiaries.Financial: financial cost was RMB59m in 1H21, down 1.53%, and financial cost ratio was 10.29%, up 3.53ppt yoy.R&D: R&D cost was RMB7m in 1H21, up 81.42%, and R&D expense ratio was 1.25%, increasing 0.81ppt yoy.
In 2021, the company’s core businesses such as domestic tourism and F&B gradually recovered at the same time, and transformed and underwent upgrades. The tourism sector continues to develop new product lines in domestic tourism and pan-tourism formats; build cross-border IP to enable new formats for destination operations; explore new directions to revive tourism sales, and build a new structure of global traffic operations.
In its new retail sector, it launched two MILOUNGE concept stores, which feature health drinks, such as “Mi Little Coconut”. While maintaining leading positions in aviation and railway F&B, Caissa aims to also include cruise ship segment, mass group meals, snack foods and other related fields, to expand its coverage of the food supply chain. The company intends to absorb and merge with Zhongxin Travel, integrating its leading outbound travel resources to raise Caissa’s competitive advantages in outbound and domestic travel, and increase its industry footprint. Its duty-free business has increased, and its duty-free transformation is bringing new growth.
Valuation and risks
Vaccine launches have eased restrictions in outbound travel. During C19, outbound travel companies have restructured under the tax exemption policy to bring in new growth. Caissa benefited directly from the outbound travel recovery business and outlying island tax exemption policy. Its merger with Zhongxin Tourism unifies its outbound travel and domestic travel business, as it expands its duty-free and other businesses to maximize scale advantages. We anticipate that Caissa will continue to grow in the future. We expect a net loss of RMB50m in 2021E and a net profit of RMB80m in 2022E, corresponding to a 79x PE in 2022E. We initiate coverage with a BUY rating.Risks include: force majeure (natural catastrophe) risks; promotions of new products less than expected; and the implementation of its merger with Zhongxin Tourism not as smooth as expected.
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