HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>A partial disposal of Club Med is positive for <a href="https://www.smartkarma.com/entities/fosun-tourism-group" target="_blank" data-smartkarma-citation="entities:27439:1" rel="noopener">Fosun Tourism (1992 HK)</a>. The market is speculating <a href="https://www.smartkarma.com/entities/capitaland-investment-ltd-sing" target="_blank" data-smartkarma-citation="entities:33774:1" rel="noopener">CapitaLand Investment /Sing (CLI SP)</a> is paying EUR500m for a 20-30% stake.</li>
<li>Club Med generated 91.7% of its 1H24 operating profit. The rumoured valuation will boost its value by HK$6.9/share, 1.2x of the share price if true.</li>
<li>We see reasons for such disposal, and if happens, this will align the stock's valuation to international peers - 26.2x for FY24, vs. its 11.3x currently.</li>
</ul>


A partial disposal of Club Med is positive for Fosun Tourism (1992 HK). The market is speculating CapitaLand Investment /Sing (CLI SP) is paying EUR500m for a 20-30% stake.
Club Med generated 91.7% of its 1H24 operating profit. The rumoured valuation will boost its value by HK$6.9/share, 1.2x of the share price if true.
We see reasons for such disposal, and if happens, this will align the stock's valuation to international peers - 26.2x for FY24, vs. its 11.3x currently.


Fosun Tourism (1992 HK): Is Club Med Disposal Happening?

<ul>
<li>
<a href="https://www.smartkarma.com/entities/fosun-tourism-group" target="_blank" data-smartkarma-citation="entities:27439:1" rel="noopener">Fosun Tourism (1992 HK)</a> (FTG) is not a China play and, instead, it has excellent exposure to the global travel industry recovery particularly through its ownership in Club Med.</li>
<li>1Q22 showcased a very solid 306.6% rebound in business volume of resorts and tourism destination operations and tourism and leisure services and solutions business, and the trend will continue.</li>
<li>We think Club Med's exposure to overseas recovery, Atlantis Sanya's ride on domestic demand and new resorts' good position to capture China's travel recovery are key drivers for FTG.</li>
</ul>



Fosun Tourism (1992 HK) (FTG) is not a China play and, instead, it has excellent exposure to the global travel industry recovery particularly through its ownership in Club Med.
1Q22 showcased a very solid 306.6% rebound in business volume of resorts and tourism destination operations and tourism and leisure services and solutions business, and the trend will continue.
We think Club Med's exposure to overseas recovery, Atlantis Sanya's ride on domestic demand and new resorts' good position to capture China's travel recovery are key drivers for FTG.


Fosun Tourism (1992 HK): Well Geared Towards Global Travel Recovery

<ul>
<li>
<a href="https://www.smartkarma.com/entities/fosun-tourism-group" target="_blank" data-smartkarma-citation="entities:27439:1" rel="noopener">Fosun Tourism (1992 HK)</a> saw a healthy 15.8% overall business volume growth in 1Q24, with net profit sustaining improvement. This should justify a catch-up in share price.</li>
<li>The cumulative bookings for Club Med for 1H24 have increased 13% YoY, while those for 2H24 have increased 10%. Positive forward bookings indicate an encouraging outlook.</li>
<li>Four new Club Med resorts to be opened in 2024 and the increase in attractiveness of Hainan after it turns into a duty-free island by 2025 are both drivers.   </li>
</ul>



Fosun Tourism (1992 HK) saw a healthy 15.8% overall business volume growth in 1Q24, with net profit sustaining improvement. This should justify a catch-up in share price.
The cumulative bookings for Club Med for 1H24 have increased 13% YoY, while those for 2H24 have increased 10%. Positive forward bookings indicate an encouraging outlook.
Four new Club Med resorts to be opened in 2024 and the increase in attractiveness of Hainan after it turns into a duty-free island by 2025 are both drivers.   


Fosun Tourism (1992 HK): A Long-Awaited Upturn

Thematic (Sector/Industry)

<ul>
<li>Various statistics suggested that China's tourism and hospitality industry has staged a significant recovery during the 2024 CNY holidays, with traffic surging high double-digit.</li>
<li>While consumers are more cautious about retail product spending, they are willing to spend more on traveling. Such a trend will continue to bode well for the sector.</li>
<li>We like OTAs including <a href="https://www.smartkarma.com/entities/tongcheng-travel-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27363:1" rel="noopener">Tongcheng Travel (780 HK)</a> and <a href="https://www.smartkarma.com/entities/trip-com-group-ltd-23a341d0-4f63-4175-a8c5-ee990906cacd" target="_blank" data-smartkarma-citation="entities:36424:1" rel="noopener">Trip.com (9961 HK)</a> despite their YTD surge in share prices. Meanwhile, <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> stays as the top pick.</li>
</ul>


Various statistics suggested that China's tourism and hospitality industry has staged a significant recovery during the 2024 CNY holidays, with traffic surging high double-digit.
While consumers are more cautious about retail product spending, they are willing to spend more on traveling. Such a trend will continue to bode well for the sector.
We like OTAs including Tongcheng Travel (780 HK) and Trip.com (9961 HK) despite their YTD surge in share prices. Meanwhile, Air China Ltd (H) (753 HK) stays as the top pick.


China Tourism and Hospitality Industry: Roundup of a Solid CNY

Tongcheng Travel Holdings  / Equity Bottom-Up

<ul>
<li>While adjusted net profit of <a href="https://www.smartkarma.com/entities/tongcheng-elong-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27363:1" rel="noopener">Tongcheng Travel Holdings Ltd (780 HK)</a> plummeted in 4Q22, the positive momentum in 1Q23 as revealed supports a sharp recovery in FY23.</li>
<li>Its huge exposure to lower-tier cities will fuel outlook while increase in monetisation will support profitability rebound. Success at Blackwhale membership program is another growth engine.  </li>
<li>Management is confident that revenue growth and better efficiency will lead the return of FY23 margin to pre-pandemic levels. Net cash position (12% of share price) is an added strength. </li>
</ul>


While adjusted net profit of Tongcheng Travel Holdings Ltd (780 HK) plummeted in 4Q22, the positive momentum in 1Q23 as revealed supports a sharp recovery in FY23.
Its huge exposure to lower-tier cities will fuel outlook while increase in monetisation will support profitability rebound. Success at Blackwhale membership program is another growth engine.  
Management is confident that revenue growth and better efficiency will lead the return of FY23 margin to pre-pandemic levels. Net cash position (12% of share price) is an added strength. 


Tongcheng Travel (780 HK): Best for Capturing Lower-Tier Cities' Growth

Hong Kong

Fosun Tourism Group operates as a leisure focused integrated tourism group. The Company provides resorts management, tourism destinations development, and other related services. Fosun Tourism Group offers its services worldwide.

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Fosun Tourism (1992 HK)