CICC: Maintains "Neutral" rating on CHINA TRAVEL HK (00308) and raises target price to 1.8 Hong Kong dollars.

CICC released a research report stating that considering the one-time loss from the divestment of tourism real estate over 25 years, but with potential increase in subsequent profits, CHINA TRAVEL HK (00308) has been downgraded from a profit of 140 million Hong Kong dollars in 25 years to a loss of 50 million Hong Kong dollars, and the profit in 26 years has been raised by 8% to 370 million Hong Kong dollars. The current stock price corresponds to a 25 times P/E for 26 years. Maintain a neutral rating. Considering the normalization of profits in 26 years, the valuation is switched to 26 years. Considering the recommended distribution of cash dividends and the company's continuous strengthening of its position as a tourism destination investment operator, the target price has been raised by 20% to 1.8 Hong Kong dollars, corresponding to a 27 times P/E for 26 years, with an 8% upside potential. Key views from CICC: Company Update The company plans to divest its tourism real estate business, which the bank believes will improve profitability and optimize resource allocation. Progress in tourism destination investment and operation is good, with agreements signed to acquire 100% equity in the Songhua Lake Resort Area, and some destinations performed well during the National Day and Mid-Autumn Festival holidays. Divestment of tourism real estate, focusing on core business, expected to improve profitability and optimize resource allocation The company plans to divest its tourism real estate business through a recommended distribution. The tourism real estate business recorded tax losses of 460 million/240 million/190 million Hong Kong dollars in 2023/2024/1H25 respectively. The bank believes that this divestment is expected to improve the company's profitability and reduce its debt ratio, as well as help the company allocate more resources to its core business. The proposed distribution includes physical distribution and cash alternatives, with controlling shareholders choosing physical distribution. Other shareholders can choose not to accept physical distribution and receive a one-time benefit of 0.336 Hong Kong dollars per share in cash (around 20% of the closing price on 10/13, paid by the controlling shareholders). In addition, the company expects this proposed distribution to generate a one-time loss of 160 million Hong Kong dollars, primarily due to the redistribution of accumulated exchange differences. Announcement of signing of equity transfer agreement for Songhua Lake Resort Area, expanding the layout of tourism destinations On September 30, the company announced the acquisition of 100% equity of Songhua Lake Resort Company and Wan Bingxue Company (managing a total of 9 ski resorts) for a consideration of 29.5 million yuan and 500,000 yuan respectively, in addition to assuming 755 million yuan in bank loans of Songhua Lake Resort Company. The bank believes that this acquisition is expected to further improve the company's layout of leisure and vacation tourism destinations and enhance its output management service capabilities. During the stability period of Songhua Lake Resort, the annual number of visitors exceeds 350,000 and the income exceeds 300 million yuan. The net profits of the two companies in 2024 are 9.96 million yuan and 230,000 yuan respectively. It is recommended to pay attention to the progress of the company's empowerment of the operation and management of this project. Outstanding tourism operation capability, some destinations performed well during the National Day and Mid-Autumn Festival holidays The company innovatively optimizes cultural and tourism experiences through IP linkage, intangible cultural heritage activities, digital immersive halls, etc. During the National Day and Mid-Autumn Festival holidays, the reception volume at China Travel International Scenic Spots exceeded one million, with the reception volume at Lushan Xiufeng Cableway, Tianshan Tourism Corridor, and Songhua Lake Resort Area all increasing by more than 100%. Many specialty boutique hotels saw a 100% occupancy rate for multiple days. Risk warning: Consumer spending recovery may not meet expectations; optimization of existing projects and expansion of new projects may not meet expectations.