Key points of investment
Haiqi Group plans to buy Sea Travel for 5.002 billion yuan for tax exemption, including 750 million yuan in cash and 4.252 billion yuan for issuing 383 million shares with 1109 million yuan; in addition, it plans to raise additional capital from 35 investors, and the number of shares issued will not exceed 30% of the total share capital before this transaction, that is, no more than 94.8 million shares; therefore, it is ultimately estimated that the company's total share capital will expand to no more than 794 million shares, and the corresponding implied market value of the current stock price will not exceed 21,557 billion yuan.
Haiqi Group is the largest comprehensive road transport service provider in Hainan. It is gradually involved in transportation, cultural tourism business, and is expected to have a synergistic effect with sea travel tax exemption: the company has built a road passenger transport network covering 18 cities and counties in Hainan Province. Passenger traffic accounts for more than 70% of the Hainan passenger line market. As of 22H1, the company operates 2,612 vehicles and 26 bus terminals above level 3 in major cities and counties in Hainan Province. In recent years, transportation and cultural tourism businesses involving tourism, exhibitions, and cultural media have been launched one after another. It may be possible to make full use of bus stations and vehicle resources to provide drainage support for duty-free sea travel; 5 customized duty-free shopping route products have been developed in '21, and various forms of commercial cooperation may continue in the future.
The Sea Travel Duty Free was established on July 21, 2020, successfully obtained an outlying islands duty-free license on August 12 of the same year, and the Sanya Sea Travel Duty Free City opened on December 30 of the same year. Sea travel duty-free has a layout in the four major commercial sectors of outlying islands, tax-free, cross-border e-commerce, and outlets: 1) Outlying Islands Tax-free. The operating area of the Sanya Sea Travel Duty Free City has reached 95,000 square meters, attracting more than 884 internationally renowned brands. The online store was officially launched on January 25, 2021. In addition, the company's outlying islands duty-free pickup points cover airports, terminals, and train stations, and delivery to the outlying islands and returning to the islands were launched in a timely manner; 2) Taxable business. In addition to the taxed stores in the Sea Travel Duty Free City, Sea Travel Duty Free membership was purchased in August 2021. It has four major access ports. It is an extension of the Hainan Outlying Islands duty-free business. Travellers can continue to shop on this platform within 180 days of leaving Hainan; 3) Cross-border e-commerce business, mainly operated by the subsidiary Sea Travel Black Tiger; 4) Sea Travel Duty Free Olay City is located in Sanya's CBD, the core business district The construction area is about 100,000 square meters, and the commercial area is about 7 10,000 square meters, the total number of booths is expected to reach 140. It is expected to open in 2023
Sea travel duty-free revenue grew rapidly while rapidly achieving profits: 1) Achieved revenue of 2,443 billion yuan in 2021, including 1,769 billion yuan for outlying islands, 544 million yuan for taxable goods, 97 million yuan for cross-border e-commerce, 20 million yuan for joint venture revenue, an overall gross profit margin of 17.75%, and net profit of 24 million yuan; 2) 22Q1 achieved revenue of 1,348 million yuan, including 1,095 million yuan for outlying islands and 228 million yuan for taxable goods. Joint venture revenue was 17 million yuan, with an overall gross profit ratio of 16.56%. Net profit was 51 million yuan, and net profit margin was 3.81%.
As a small but sophisticated duty-free newcomer with strong operations, Sea Travel Duty Free is expected to fully enjoy the outlying islands duty-free dividends:
1) Backed by the Hainan State-owned Assets Administration Commission, the parent company, Hainan Travel Investment, has rich assets, or is helpful to the Sea Travel Duty Free City in expanding brand awareness and customer acquisition;
2) The core management has been deeply involved in the industry for many years, with innovative and avant-garde business ideas: Chairman and general manager Xie Zhiyong has been in the duty-free industry for 13 years and was the general manager of Hainan Duty Free, leading the company's rapid growth; 3) Supply chain: strategic cooperation Lagardale and Silla Duty Free, leading the number of brands: Sea Travel Duty Free has signed strategic cooperation agreements with Lagerdale and Silla Duty Free, and has continuously improved its procurement capacity. It has introduced more than 884 brands. Among them, the number of fragrance brands is leading, and the joint venture model has successfully introduced many boutique brands;
4) Sea Travel Duty Free has excellent marketing capabilities, quickly opens up brand awareness, and attracts potential consumers:
① The layout of various online platforms is perfect, and the number of fans who have purchased the Douyin platform has reached 656,000; ② The leading MCN agency that signed the contract is far away, low price genuine endorsements, celebrity celebrity effect, and live e-commerce bring goods; ③ connect with other duty-free members and rapidly expand the membership system; ④ propose concepts such as “the first stop for duty-free shopping in Hainan” and “super cost-effective” to strengthen the image of travel duty-free brands and consumers. Discounts are generally maintained at a competitive level.
Considering that Haiqi Group is expected to integrate resources after merging Sea Travel Duty Free, as the dividends of the Hainan outlying islands duty-free industry continue to be released, compounded by the excellent operating capabilities of Sea Travel Duty Free itself, the company's revenue and profit are expected to grow rapidly. We expect that after completing the injection, Haiqi Group's net profit will reach 0.48, 291, 473 million yuan in 2022-2024. Considering additional issuance and acquisition, without considering a fixed increase in supporting capital raised, corresponding to the closing price PE 375.6, 62.6, 38.4 times on September 23, 2022, was covered for the first time. It was given a “prudent increase in holdings” rating.
Risk warning: epidemic-related risks, macroeconomic downside risks, increased market competition, policy risks, acquisitions falling short of expectations, approval-related risks, operation-related risks, etc.
