Company trends

Maintain to outperform the industry

The current situation of the company

We follow the recent developments of the company.

Comment

Passenger flow in Hong Kong has declined significantly: 1) on 7-8-9, 2019, the number of Chinese mainland visitors to Hong Kong was-5.5% compared with the same period last year. Chinese mainland tourists accounted for a high proportion of visitors to Hong Kong, reaching 78 per cent in 2018. 2) the company's tourism services, hotel and passenger transport business had revenue of HK $2.559 billion in 2018, with a net profit of HK $460 million (accounting for 67% of the company's net profit); 1H19 had revenue of HK $1.3 billion and a net profit of HK $179 million. 3) most of the above businesses are distributed in Hong Kong. With the exception of the tourist visa business from Hong Kong to the mainland, which is more rigid and less affected, the rest of the business is greatly affected. We expect the rest of the business 2H19 to be at a loss.

Divestiture of travel agency business: 1) the company announced on August 9 that the company sold its travel agency business in Hong Kong and overseas (excluding travel document business), with the main purpose of focusing on the development of tourism destination business. 2) at present, the travel agency business is promoting the internal restructuring, and the company is optimistic that the sale will be completed by the beginning of 2020. 3) the company's travel agency business (excluding travel document business) is not profitable due to the impact of online OTA, and the company expects to have a limited impact on net profit after the statement.

The company announced on September 12 that the holding company, China Tourism Group, will transfer 10% of its equity to the social security fund at one time, and upon completion, SASAC and the social security fund will hold 90% and 10% of China Tourism Group respectively. This change is limited to the group level and has no direct impact on listed companies.

Valuation proposal

Due to the significant decline in the company's business in Hong Kong, we have lowered our 20% EPS forecast for 2019 by 10% to HK $0.11 / HK $0.13. The current share price corresponds to 11.1x/9.7x 2019 Universe 20e Pmax E. Maintain an outperform industry rating and target price of HK $1.57, corresponding to 12x/11x2019/20e PPease E, which has 27% upside compared to the current share price.

Risk.

The risk of business policy adjustment; the risk of passenger flow decline in Hong Kong.