20221103-招银国际-中国中免-601888.SH-A_weak_3Q_on_Sanya_s_lockdown__resilient_online_sales_made_up_the_gap_but_unavoidably_diluted_GPM_4页_1mb

CMB International Global Markets | Equity Research | Company Update Summary

Core Content and Key Points

CTGDF (601888 CH), a subsidiary of China Travel Group, reported a weak 3Q due to Sanya's lockdown, which impacted its recurring net profits by ~45%. However, revenue increased by 8% QoQ to RMB11.7bn, driven by resilient online sales through Sunrise Shanghai, which offset some of the offline challenges. The sales mix shift caused a significant decline in GPM and OPM by 10pp and 11pp, respectively, to 24.7% and 12.5%.

Main Views and Key Information

1. Management Actions and Impact

• Forex Mitigation: Management has taken steps to reduce the adverse impact of a strengthening USD against RMB, including building forex reserves, extending payments in foreign currencies, and cost-sharing with suppliers.
• Synergy with Swire Property: CTGDF and Swire Property are collaborating on the expansion of Haitang Bay Phase 2&3, following a joint acquisition of land for Phase 1.
• Haikou DFS Mall Launch: The mall opened on 28 Oct, covering 800+ global luxury brands. Notable first-time entries in Hainan include YSL, Prada, Burberry, BV, and Moncler. Cosmetic items offer a 20% discount, while brands like Shisedo, La Mer, and Dior provide discounts of 28–32% off MSRP.

2. Earnings Forecast and Adjustments

• Revised Earnings: The 3Q results prompted a cut in 2022/23E revenue by 16.6% and 23.8%, and a 1.6–0.9pp reduction in GPM, leading to an average 23% cut in net profits.
• 4Q22E Forecast: Revenue and net profits are expected to be RMB17.7bn and RMB2.2bn, respectively, assuming no unexpected lockdowns. GPM is projected at 37%.
• Sales Assumptions: CMBIGM assumes Hainan will generate RMB54bn/75bn in sales from duty-free operators in 2022/23, with CTGDF expected to capture ~80% / ~77% of this.

3. Valuation and Price Targets

• Target Price: RMB230.0, a decrease from the previous target of RMB253.0.
• P/E Ratio: Revised to 45.0x roll-forward end-23E P/E, which remains at the 2-year average since 2020.

Financial Summary

Revenue

• FY20A: RMB52,597mn
• FY21A: RMB67,676mn
• FY22E: RMB57,080mn
• FY23E: RMB73,409mn
• FY24E: RMB101,991mn

Net Income

• FY20A: RMB6,140mn
• FY21A: RMB9,654mn
• FY22E: RMB6,830mn
• FY23E: RMB9,976mn
• FY24E: RMB13,224mn

EPS (RMB)

• FY20A: 3.1
• FY21A: 4.9
• FY22E: 3.5
• FY23E: 5.1
• FY24E: 6.7

P/E Ratio

• FY20A: n.a
• FY21A: n.a
• FY22E: 52.2
• FY23E: 35.7
• FY24E: 27.0

P/B Ratio

• FY20A: n.a
• FY21A: n.a
• FY22E: 10.4
• FY23E: 8.7
• FY24E: 7.1

Dividend Yield (%)

• FY20A: n.a
• FY21A: n.a
• FY22E: 0.6
• FY23E: 0.9
• FY24E: 1.2

ROE (%)

• FY20A: 27.5
• FY21A: 32.6
• FY22E: 20.0
• FY23E: 24.3
• FY24E: 26.4

Net Gearing (%)

• FY20A: 54.6
• FY21A: 32.8
• FY22E: 49.5
• FY23E: 52.0
• FY24E: 53.8

Key Ratios

• Gross Margin: 40.6% (FY20A), 31.6% (FY22E), 34.7% (FY23E), 36.1% (FY24E)
• Operating Margin: 18.6% (FY20A), 18.3% (FY22E), 20.7% (FY23E), 19.7% (FY24E)
• Net Margin: 11.7% (FY20A), 12.0% (FY22E), 13.6% (FY23E), 13.0% (FY24E)
• Current Ratio (x): 0.5 (FY20A), 0.6 (FY22E)
• Inventory Turnover Days: 172.8 (FY20A), 130.0 (FY22E), 120.0 (FY24E)
• Net Debt to Equity (%): 54.6 (FY20A), 49.5 (FY22E), 53.8 (FY24E)
• ROE: 27.5% (FY20A), 20.0% (FY22E), 26.4% (FY24E)
• ROA: 14.6% (FY20A), 11.3% (FY22E), 16.0% (FY24E)
• Dividend Yield: 0.5% (FY20A), 0.7% (FY22E), 1.3% (FY24E)

Stock Performance

• Current Price: RMB182.6
• 1-Month Return: -7.4%
• 3-Month Return: 8.2%
• 6-Month Return: 0.9%

Ratings and Recommendations

• CMBIGM Rating: BUY
• Potential Return: Over 15% over next 12 months

Shareholding Structure

• China Travel Group: 53.3%
• HKSC: 9.8%
• CSFC: 3.0%

Market Data

• Market Cap (RMB mn): 376,810
• 52-Week High/Low (RMB): 237.8 / 153.6
• Total Issued Shares (mn): 1,952

Earnings Revision

Metric	New (RMB mn)	Old (RMB mn)	Diff (%)
Revenue	57,080	68,404	-16.6%
Gross Profit	18,035	23,764	-24.1%
EBIT	10,454	14,345	-27.1%
Net Profit	6,830	8,952	-23.7%
Gross Margin	31.6%	34.7%	-3.1ppt
Operating Margin	18.3%	21.0%	-2.7ppt
Net Margin	12.0%	13.1%	-1.1ppt

Conclusion

CTGDF's 3Q performance was affected by Sanya's lockdown, but online sales helped to offset some of the losses. The company is working to mitigate forex risks and is in a synergistic partnership with Swire Property. The Haikou DFS mall launch is a significant milestone, offering discounts on luxury goods. Despite the challenges, CMBIGM maintains a BUY rating with a revised target price of RMB230.0. Financial metrics show a decline in margins but a positive outlook for future performance.