Brief China: China Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption and more

In this briefing:

1. China Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption
2. New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short
3. US Should Play Trump Card on South China Sea Disputes – Redeploy to Subic Bay
4. Flash During Trade Talks
5. StubWorld: PCCW Is “Cheap” but Stub Ops Are Deteriorating

1. China Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption

China Tobacco International (Hong Kong), a subsidiary of the China Tobacco International, is seeking a listing in Hong Kong. Per media reports, the company plans to raise USD 100 million. In this insight, we will discuss the following topics: 

• What does China Tobacco International do?
• What is its relationship with China Tobacco?
• How did its different segments perform?
• The industrial backdrop

2. New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short

Zhejiang New Century Hotel Management Group (1158 HK) (NCH) is looking to raise up to US$179m in its upcoming IPO.

NCH is riddled with related party transactions, from the sales of consumer goods, carpets and wine to having 24% of its hotel management revenue come from related parties. There had been a handful of small acquisitions and disposals but it all seemed to be just reshuffling of assets between NCH and the controlling shareholder with no clear strategy. 

Key metrics show that even though NCH is operating at higher ADR and RevPAR compared to peers, it ultimately falls short in terms of EBITDA and net margins. It also has the lowest occupancy rate.

In this insight, we will focus on corporate governance issues, peer metric comparison, and relative valuation with listed hotel operators. 

3. US Should Play Trump Card on South China Sea Disputes – Redeploy to Subic Bay

• Trump Should Play Winning Hand in South China Sea – Return Major Military Presence to Subic Bay
• Returning a major US military presence to Subic Bay and Clark Air Force Base in the Philippines would be a strong signal to Beijing that the US takes their alliances and position in Asia strongly.
• The Trump administration has been distracted by concerns over trade and has not maintained a sensible eye on other US interests around the world.
• Playing this important ‘Trump card’ in SE Asia would be a powerful signal that the US considers China’s actions in the South China Sea to be illegitimate. This would also send a strong positive signal to US allies in SE and North East Asia (Japan and Korea) that the US is committed to open navigation in this important waterway.

4. Flash During Trade Talks

So we hear that President Trump may be doing something in Vietnam prior to the March 1 trade deadline. Even though Trump tweeted the tariffs will not be implemented on March 1, you can be sure that negotiations are still going at full speed. However, in the shadow of trade talks we are looking at China’s Flash numbers as an indicator of economic health.

5. StubWorld: PCCW Is “Cheap” but Stub Ops Are Deteriorating

This week in StubWorld …

• Select media ops (Free TV and OTT), together with substantial losses booked to other businesses and eliminations, continue to weigh heavily on PCCW Ltd (8 HK)‘s stub ops.

Preceding my comments on PCCW and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.