According to a recent report from Guozheng International, China Travel HK (03808) experienced a decline in first-half performance, primarily impacted by negative factors in its tourism attraction segment. Following the divestiture of its consistently loss-making tourism real estate operations, an improvement in financial statements is anticipated. In other business areas, the hotel segment continues to grow, and due to the significant fixed costs associated with hotels, increased revenues are expected to lead to a decrease in expense ratio, resulting in profit growth outpacing revenue. The passenger transport business remains relatively stable, and the tourism documentation segment is anticipated to return to normal levels. As consumer spending recovers and tourism bounces back, overall performance is expected to improve in the second half of the year. Additionally, with the peak winter sports season approaching, the consolidation of snow-related operations in November is likely to contribute incremental revenue to the company's performance. Following the divestiture of its tourism real estate operations and the consolidation of its snow-related businesses, the company’s performance outlook appears positive, warranting attention to subsequent business developments. Key points from Guozheng International include:
On October 12, China Travel HK announced a proposal for distributing shares to its shareholders. This is part of a corporate restructure that aims to spin off its tourism real estate operations into a private entity. The board also recommended a capital reduction, lowering the recorded capital from HKD 9.22 billion to HKD 720 million. Post-divestiture of the continuous loss-making tourism real estate segment, the company will focus on its core operations, leading to expected improvements in its financial statements. Furthermore, the company is strategically investing in the snow economy. It previously announced the acquisition of 75% stakes in Jilin Songhua Lake International Resort Development Co., Ltd, and Beijing Wan Ice Snow Sports Co., Ltd, both of which will start consolidation in November, likely enhancing revenue and profit.
The divestment of its tourism real estate operations is aimed at improving core competitiveness and overall profitability. The restructuring will involve transferring the tourism real estate rights to a private company, with five projects included in the divestment: Zhuhai Haichuan Bay, Xianyang Haichuan Bay, Anji Resort, Shenzhen Big Airport Project, and Chengdu Jintang Project. The projected income from the divested segments for 2023/2024/2025H1 are HKD 629 million, HKD 459 million, and HKD 147 million respectively, with net losses of HKD 461 million, HKD 239 million, and HKD 192 million. Due to ongoing losses in the tourism real estate segment and future uncertainty regarding profitability, the divestiture will alleviate pressure on profits. The company anticipates that the recommended distribution will result in a loss of HKD 160 million, mainly due to the reclassification of cumulative exchange differences related to the tourism real estate segment.
Once the distribution scheme is completed, the tourism real estate division will be delisted from the public company and will become a private entity controlled by the group. The current distribution offers shareholders two options: 1) a stock distribution, where each share will correspond to one share of the private company; 2) a cash distribution of HKD 0.336 per share, approximately 21.96% of the last trading price of HKD 1.53 per share before the announcement. Shareholders in the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect will receive a cash distribution due to difficulties in obtaining shares of the private company.
Additionally, the board proposed reducing the recorded capital from HKD 9.22 billion to HKD 720 million. This reduction will result in an influx of HKD 8.5 billion, which will be transferred to retained earnings, creating a reserve for distribution. Due to the reduction, the retained earnings will significantly decrease, which may severely restrict the company from legally paying dividends and/or performing any actions requiring the use of the distributable reserves. Once the capital reduction takes effect, the company will have greater flexibility in corporate actions and decision-making regarding dividend policies.
In alignment with national initiatives, the company is actively developing the snow economy and has acquired snow-related projects. On August 26, it entered into equity transfer agreements with Changchun Vanke Real Estate Development Co., Ltd. and related parties to acquire a 75% stake in Jilin Province Songhua Lake International Resort Development Co., Ltd. Additionally, an agreement was established with Vanke Hotel Management Co., Ltd. and related entities to acquire 75% of Beijing Wan Ice Snow Sports Co., Ltd. The Songhua Lake company oversees the Songhua Lake ski resort and operates several hotels and a commercial street. Wan Ice focuses on snowfield planning, construction consultation, operations management, marketing, and ski teaching, managing nine well-known ski resorts and possessing rich resources for mountain teaching cooperation, illustrating strong integration capabilities in the skiing industry. These projects are expected to be consolidated in November, potentially contributing positively to performance. The company will further develop related projects to respond to national calls for promoting the snow economy.
Risks include macroeconomic downturns, weak consumer and tourism markets, intensifying industry competition, and underwhelming growth in the snow business.