CICC released a research report stating that considering the one-time loss from the divestiture of tourism real estate in 2025, which is expected to enhance subsequent profits, the firm has lowered CHINA TRAVEL HK's (00308) 2025 earnings forecast by HK$140 million to a loss of HK$50 million, while raising the 2026 earnings forecast by 8% to HK$370 million. The current stock price corresponds to 25x P/E for 2026. The firm maintains its neutral rating. Considering the relatively normalized earnings in 2026, with valuation switching to 2026, and taking into account the proposed cash distribution benefits and the company's continued strengthening of its position as a tourism destination investment and operation provider, the target price has been raised by 20% to HK$1.8, corresponding to 27x P/E for 2026, with 8% upside potential.

CICC's main viewpoints are as follows:

Company Updates The company plans to divest its tourism real estate business, which is expected to improve profitability and optimize resource allocation. Progress in tourism destination investment and operations has been positive, with signed agreements to acquire 100% equity in Songhua Lake Resort. During the National Day and Mid-Autumn Festival holidays, some of the company's destinations performed exceptionally well.

Divesting Tourism Real Estate and Focusing on Core Business Expected to Improve Profitability and Optimize Resource Allocation The company plans to divest its tourism real estate business through a proposed distribution. The tourism real estate business recorded after-tax losses of HK$460 million, HK$240 million, and HK$190 million in 2023, 2024, and 1H25 respectively. This divestiture is expected to improve the company's profitability and reduce its debt ratio, while helping the company allocate more resources to its core business. The proposed distribution includes distribution in specie and cash alternative, with the controlling shareholder choosing distribution in specie, while other shareholders can choose not to accept the distribution in specie and receive a one-time benefit of HK$0.336 per share in cash (approximately 20% of the closing price on October 13, paid by the controlling shareholder). Additionally, the company expects this proposed distribution to generate a one-time loss of HK$160 million, mainly due to the reallocation of cumulative exchange differences.

Announcement of Songhua Lake Resort Equity Transfer Agreement, Further Expanding Tourism Destination Layout On September 30, the company announced the acquisition of 100% shares in Songhua Lake Resort Company and Wanbing Snow Company (cumulatively managing 9 ski resorts) for RMB295 million and RMB5 million respectively, with an additional assumption of RMB755 million in bank loans from Songhua Lake Resort Company. This acquisition is expected to further improve the company's leisure and vacation tourism destination layout and enhance its management service output capabilities. Songhua Lake Resort receives over 350,000 visitors annually during stable periods with revenue exceeding RMB300 million. In 2024, the after-tax profits of the two companies were RMB9.96 million and RMB230,000 respectively. Attention should be paid to the company's subsequent operational management empowerment progress for this project.

Outstanding Tourism Operations Capabilities, Strong Performance at Some Destinations During National Day and Mid-Autumn Festival Holidays The company has innovatively optimized cultural tourism experiences through IP collaborations, intangible cultural heritage activities, and digital immersive venues. During the National Day and Mid-Autumn Festival holidays, China Travel International scenic areas received over one million visitors, with Lushan Xiufeng Cableway and Tianshan Tourism Corridor seeing visitor increases of over 100% year-on-year. Songhua Lake Resort saw steady growth in visitor numbers, and multiple boutique hotels achieved 100% occupancy rates for several days.

Risk Warning: Consumer spending recovery may fall short of expectations; optimization of existing projects and expansion of new projects may not meet expectations.