1H16 should not be a surprise given profit warnings were issued before…
China Travel’s total reported net profit was down by 71% yoy, in line with theprofit warning guidance. However, if we strip out the one-off items, coreearnings were down by 34% yoy, which is in line with our previousdowngrade.
…but revenue missed our estimate by 13%
Total revenue was down by 13% yoy and missed our forecast by 13%. Wenoticed that the travel agency and golf club businesses were down by 21% and31% yoy, respectively. Other key businesses, such as tourist attractions andhotels also dropped – by 9% and 6% yoy, respectively. While gross marginremained flat at 47%, OPEX as percentage of revenue increased slightly.
Analyst briefing on 18 August
Management will host an analyst briefing at 15/F, CTS House, 78-83Connaught Road Central, Hong Kong at 10am on 18 August 2016. Key pointsto focus on: 1) reasons for revenue drop on tourist attraction/bus/travel agencybusinesses; 2) outlook for the hotel segment in 2H16; and 3) guidance onpotential acquisitions of new tourist sites in 2016/2017.
Maintaining Hold rating; price target at HKD2.55
We downgraded the stock recently as we believe its China tourism projects aredelayed for delivery, while its HK tourism environment is tough.