20220426-招银国际-中国中免-601888.SH-1Q22_below_market_although_GPM_rebounded_on_strong_2M22_momentum__keep_Hold_on_fluid_COVID_situation_5页_1mb

CMB International Global Markets | Equity Research | Company Update Summary

Core Content Overview

This report provides an equity research update on CTGDF (601888 CH), focusing on its financial performance in 1Q22, operational developments, and future outlook. The overall recommendation is HOLD, with a revised target price of RMB192.0 (down from RMB212), reflecting a 10.6% upside from the current price of RMB173.5.

Financial Performance in 1Q22

• Net profits in 1Q22 amounted to RMB2.56bn, a 10% YoY decline and slightly below market consensus.
• The Gross Margin improved to 34% in 1Q22 from 28% in 4Q21, attributed to disciplined promotions and narrowing discounts.
• March performance was weak, with net profits only RMB160mn, likely due to Hainan's operation closure.
• The earnings cut is expected to be the main driver for share price performance moving forward.
• The 2022 forecast is 6% below consensus, with a 3% reduction in net profit estimates to reflect 1Q22 results.
• The new P/E of 34x (from 36.5x) is -1 SD below the 3-year average.

Key Highlights from Management Call

• Covid impact in Hainan remains under control, but uncertainty persists in other regions like Shanghai.
• The Haikou International Duty Free City has completed its investment phase and entered the construction phase, but construction is suspended due to Shanghai lockdowns.
• The target opening is still Sep 30, 2022.
• The integrated online platform has been established, connecting online and offline, domestic and overseas, and duty-free and taxed businesses.
• The platform has a potential customer portfolio of ~22 million subscribers on CTGDF's WeChat mini-program.
• Online business is a key focus for the next 3-5 years.

Financial Projections

Metric	FY22E	FY23E	FY24E	Consensus	Diff (%)
Revenue (RMB mn)	97,310	130,893	175,788	138,200	+27.2%
Gross Profit (RMB mn)	30,929	43,554	61,660	55,569	+11.0%
EBIT (RMB mn)	17,460	22,624	29,151	27,869	+4.6%
Net Profit (RMB mn)	11,044	14,641	18,910	18,796	+0.6%
EPS (RMB)	5.66	7.50	9.68	9.33	+3.8%

Key Financial Metrics

• Gross Margin is expected to increase from 31.6% to 35.1% by 2024.
• Net Margin is projected to decline slightly from 11.98% in FY21A to 10.8% in FY24E.
• ROE is expected to remain stable at 31.5% in FY24E.
• Net gearing is projected to increase from 37.3% in FY22E to 44.3% in FY24E.
• Dividend Yield is expected to rise from 1.0% in FY22E to 1.8% in FY24E.

Operational Developments

• Logistic system in Hainan has completed Phase I (50,000 m²), with Phase II (40,000 m²) planned for future.
• The benefits of the new logistics system are expected to emerge from May.
• Business development with luxury brands slowed in March-April due to Shanghai lockdowns, but some brands are recruiting in Hainan.
• Inventory increased by 6.2% YoY, driven by strategic stockpiling to manage global macroeconomic and geopolitical uncertainties.
• Inventory turnover days are expected to decline from 172.8 in FY20A to 120.0 in FY24E.

Strategic Focus

• Online business is a key focus for the next 3-5 years, with an integrated platform and 22 million subscribers.
• Overseas expansion will be another key focus, with focus on Southeast Asia (SEA) and regions with a high presence of Chinese travelers.
• Stores in Hong Kong Airport, Hong Kong city, Macau Airport, and Cambodia continue to perform positively in 1Q22.
• Macau city duty-free shop opened in the quarter.

Shareholding and Stock Data

• Market Cap: RMB409,491 million
• Average 3 months turnover: RMB2,279 million
• 52-week High/Low: RMB343.3 / RMB156.1
• Total issued shares: 1,952 million

Shareholding Structure

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

Share Performance

Period	Absolute (%)	Relative (%)
1-month	+2.6	+13.4
3-month	-8.0	+12.2
6-month	-34.5	-11.4

Key Ratios

Metric	FY20A	FY21A	FY22E	FY23E	FY24E
Gross Margin (%)	40.6	33.7	31.8	33.3	35.1
Operating Margin (%)	18.6	21.9	17.9	17.3	16.6
Pre-tax Margin (%)	18.4	21.9	17.5	17.2	16.5
Net Margin (%)	11.7	14.3	11.3	11.2	10.8
Net Debt to Equity (%)	54.6	32.8	37.3	40.2	44.3
ROE (%)	27.5	32.6	29.7	31.1	31.5
Dividend Yield (%)	0.6	0.9	1.0	1.4	1.8

Outlook and Risks

• The 1Q22 momentum may not extend into the coming quarters due to uncertainties in the Covid situation and supply chain disruptions.
• The share price is currently trading at -2SD below average, and the earnings cut is the main event expected to drive performance.
• The company's strategic focus on online business, logistics, and overseas expansion is expected to improve operating efficiency and market share.
• Inventory management is a key area for improvement, with the aim to reduce turnover days and increase operating efficiency.

CMBIGM Ratings

• HOLD: Stock with potential return of +10.6% over next 12 months.
• BUY: Stock with potential return of over 15%.
• SELL: Stock with potential loss of over 10%.
• NOT RATED: Stock not rated by CMBIGM.

Disclaimer

• This report is not investment advice and should be independently evaluated.
• Risks are involved in transacting in any securities, and actual events may differ from the report's projections.
• CMBIGM is not liable for any loss, damage, or expense incurred from reliance on this report.
• The information is based on publicly available data and may be subject to change.