20220608-招银国际-中国中免-601888.SH-Looking_past_the_weak_2Q__earnings_risk_diminishing_as_consensus_is_subtly_edging_down__upgrade_to_BUY_5页_1mb

CMB International Global Markets | Equity Research | Company Update Summary

Core Content

This report provides an update on CTGDF (601888 CH), a company in the China consumer sector. The key findings and recommendations are based on recent performance, earnings revisions, and market expectations.

Main Points

• Earnings Outlook: The company's second quarter (2Q) performance is expected to be weak due to the impact of lockdowns and reduced airport traffic. However, the report suggests that the worst is likely over, with potential for recovery in the fourth quarter (4Q) driven by seasonal festivals and shopping campaigns.
• Rating Change: The company has been upgraded from HOLD to BUY, reflecting improved risk-reward profile and potential for a price increase. The target price has been raised to RMB232 from RMB192.
• Earnings Revisions:
  • Revenue for FY22E was cut by ~17% due to reduced performance at Shanghai Airport and Hainan offshore duty-free operations.
  • Gross profit margin and EBIT margin were raised by 1.5pp and 1.3pp respectively.
  • Net profit for FY22E was reduced by ~12% compared to previous estimates.
• Market Share and Growth:
  • The company's Hainan duty-free sales target was lowered from RMB100bn to RMB80bn, based on a projected market share of 80%+.
  • The report highlights the potential for growth in the Hainan market and the company's expansion efforts.
• Valuation:
  • The target price is now based on a 46.5x end-22E P/E multiple, up from 34.0x, indicating a rerating is expected.
  • The P/E and P/B multiples are projected to decline over time, reflecting a more favorable valuation as the company's performance improves.
• Financial Performance:
  • Revenue is expected to grow significantly from FY20A to FY24E, with a compound annual growth rate (CAGR) of 47.4% in FY23E and 39.0% in FY24E.
  • Net income is projected to increase from FY20A to FY24E, with a CAGR of 43.6% in FY23E and 38.4% in FY24E.
  • EPS is expected to rise from RMB3.1 in FY20A to RMB9.9 in FY24E.
• Key Ratios:
  • Gross margin is projected to increase from 33.31% in FY22E to 36.44% in FY24E.
  • Operating margin is expected to decrease slightly from 18.9% in FY22E to 17.95% in FY24E.
  • Net margin is projected to decrease from 12.13% in FY22E to 11.75% in FY24E.
  • ROE is expected to rise from 26.9% in FY22E to 32.8% in FY24E.
• Shareholding Structure:
  • China Travel Group holds 53.3% of the shares.
  • HKSC and CSFC hold 9.8% and 3.0% respectively.
• Stock Performance:
  • The stock has had a mixed performance over the past 12 months, with a 12.6% gain in the last month and a -13.2% decline over 6 months.
  • The stock is currently trading at RMB184.8, with a target price of RMB232.0, implying a potential upside of +25.6%.

Key Financial Tables

Financial Metric	FY20A	FY21A	FY22E	FY23E	FY24E
Revenue (RMB mn)	52,597	67,676	80,343	118,452	164,665
Net income (RMB mn)	6,140	9,654	9,745	13,990	19,355
EPS (RMB)	3.1	4.9	5.0	7.2	9.9
P/E (x)	n.a	37.7	37.3	26.0	18.8
P/B (x)	n.a	12.3	10.0	7.9	6.2
Dividend Yield (%)	n.a	0.8	0.9	1.2	1.7
ROE (%)	27.5	32.6	26.9	30.5	32.8
Net gearing (%)	54.6	32.8	44.6	45.3	49.5

Earnings Revision Summary

Metric	New Estimate	Old Estimate	Diff (%)
Revenue	80,343	97,310	-17.4%
Gross profit	26,760	30,929	-13.5%
EBIT	15,164	17,460	-13.1%
Net profit	9,745	11,044	-11.8%
EPS	4.99	5.66	-11.8%
Gross margin	33.31%	31.78%	+1.5pp
EBIT margin	18.87%	17.94%	+0.9pp
Net margin	12.13%	11.35%	+0.8pp

Market Share and Expansion

• Hainan Duty-Free Sales Target: Lowered from RMB100bn to RMB80bn, reflecting a projected 80%+ market share.
• Market Share Chart: Shows the company's position in the Hainan duty-free market.
• Space Expansion in Hainan: Indicates the company's efforts to increase its market presence.

Valuation and Performance

• Target Price: RMB232.0 (up from RMB192.0).
• 12M Forward P/E Band: Ranges from 18.8 to 46.5x.
• 12M Trailing P/B Band: Ranges from 6.2 to 10.0x.
• Stock Price Performance: Mixed over the past 12 months, with a 12.6% gain in the last month and a -13.2% decline over 6 months.

Analyst Certification and Disclosures

• The analyst certifies that the views expressed in the report accurately reflect personal opinions.
• No compensation was directly or indirectly related to the report's views.
• The analyst confirms no trading in the stock within 30 days before or after the report's issue date.
• The report is not an offer to buy or sell any security and may not be reproduced without prior consent.

CMBIGM Ratings

• BUY: Potential return of over 15% over the next 12 months.
• HOLD: Potential return of +15% to -10%.
• SELL: Potential loss of over 10%.
• OUTPERFORM: Industry expected to outperform the market.
• MARKET-PERFORM: Industry expected to perform in-line with the market.
• UNDERPERFORM: Industry expected to underperform the market.

Company Information

• CMB International Global Markets Limited: A subsidiary of China Merchants Bank.
• Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong.
• Contact: (852) 3900 0888 (Tel), (852) 3900 0800 (Fax).

Legal and Compliance Information

• The report is for the use of intended recipients only.
• It is not suitable for all investors and should not be used for individual investment advice.
• The report is subject to change without notice.
• CMBIGM may issue other reports with different conclusions and is not liable for any reliance on the information contained herein.

Distribution Restrictions

• The report is distributed only to specific investors in the UK, US, and Singapore.
• In the US, it is only for "major US institutional investors".
• In Singapore, it is distributed by CMBI (Singapore) Pte. Limited (CMBIGMG), an Exempt Financial Adviser.

Conclusion

The report concludes that CTGDF is a potential BUY with a higher target price and improved risk-reward profile. It highlights the company's recovery prospects, especially in the fourth quarter, and its growth potential in the Hainan market. Investors are advised to consider the report's findings and consult with a financial advisor before making investment decisions.