Performance review
2021 results are in line with previous earnings forecasts
The company announced its 2021 results: operating income of HK$3,648 million, +85% year-on-year; net profit of HK$174 million, which turned a loss into a profit from the same period in 2020 (net loss of HK$391 million), mainly due to the fact that Haiquan Bay, Zhuhai, recorded real estate sales revenue of about HK$1.3 billion, generated revenue of about HK$216 million from the completion of the sale of the travel agency business, and changes in the fair value of investment properties from a loss of about HK$183 million in 2020 to a profit of approximately HK$136 million. The results are in line with previous profit forecasts.
By business sector: 1) Tourist attractions and related businesses: theme park revenue +57% year-on-year, recovering to 49% in '19, accounting for a loss of HK$40 million, a year-on-year reduction of losses; revenue from natural and cultural attractions +117%, recovering to 101% in '19, accounting for profit attributable to HK$37 million, reversing losses year-on-year; revenue from leisure resorts (excluding tourist real estate) recovered to 89% in '19; revenue from supporting services for tourist attractions was -5%, recording profit. 2) Travel agencies, travel documents and related businesses: The sale of travel agencies was completed in May '21, and since Hong Kong had not cleared customs and demand for documents had not recovered, revenue was -59% year-on-year, accounting for a loss of HK$107 million. 3) Hotel business: Revenue was +35% year-on-year, recovering to 62% in '19, accounting for a loss of HK$33 million. The revenue of Metropark Hotel in Beijing recovered to 95% in '19, and the revenue of hotels in Hong Kong and Macau recovered 50%. 4) Passenger transport business: Affected by the epidemic, cross-border bus and Hong Kong and Macau passenger ship services have not resumed. The main revenue comes from the bus business. Revenue in '21 was -15% year-on-year, accounting for a loss of HK$248 million.
Development trends
Follow the progress of customs clearance in Hong Kong, reduce costs and flow in Hong Kong and Macao; lay out overseas business in a long-term strategic manner. On March 29, the HKSAR Government announced that it would extend the validity period of various regulations under the Prevention and Control of Disease Ordinance (Chapter 599) for 6 months until September 30, 2022/1. Due to delays in customs clearance in Hong Kong disrupted by the epidemic, the company's passenger transportation, hotel and documentation businesses were unable to resume, and short-term profits were under pressure (Hong Kong and Macau business accounted for more than 50% of normal annual profit contributions). The company opened resources and saved money in the short term, such as developing a route between Macau and Jiuzhou Port in Zhuhai, optimizing the staff structure to reduce operating costs, etc.; revitalizing and optimizing existing assets in the long term (such as the Hung Hom warehouse renovation project) and exploring overseas layout (signed an acquisition agreement for the Maldivian resort project in October '21).
The domestic epidemic has disrupted passenger flow; stick to the boutique benchmark route. Since March, the epidemic has spread in many parts of the country. Among them, there is no shortage of tourist destinations and places with wealthy visitors. On March 30, the Ministry of Culture and Tourism stated at its regular press conference for the first quarter of the year that it will strictly implement the “fusing” mechanism for tourism management across provinces. We believe that the general trend of marginal optimization of long-term control measures remains unchanged (such as the liberalization of self-testing of antigen detection reagents, the introduction of a new version of the diagnosis and treatment plan, etc.), but there is great uncertainty about the short-term impact of the epidemic. The company adheres to the boutique benchmark line, such as promoting the transformation of the Shapotou Star Hotel Phase II and the Neptune Hotel in Haiquan Bay, Zhuhai; participating in the vacation product Kaiyuan Senbo made a profit in 21 years.
Profit forecasting and valuation
Carefully considering the impact of the pandemic and Hong Kong's customs clearance time, lowered the 22-year profit forecast by 32% to HK$110 million, and introduced a 23-year profit forecast of HK$301 million. The current stock price corresponds to 27 times the 23-year price-earnings ratio. Maintaining a neutral rating and target price of HK$1.5, corresponding to 27 times the 23-year price-earnings ratio, there is room for a decline of 2%.
risks
Customs clearance times in Hong Kong have been slower than expected; the negative impact of the pandemic on travel has exceeded expectations.