Source of this article: Times Finance Author: Zhou Jiabao
Hong Kong stock The largest IPO this year - China Travel Group China Duty Free Co., Ltd. (hereinafter referred to as "China Duty Free") will be officially listed on the Hong Kong Stock Exchange tomorrow (August 25) Listed on the market.
cdf Photo source of Sanya Haitang Bay Duty Free Shop: Times Finance
According to previous information, the issue price of China Duty Free H shares for overseas listing is HK$158.00 per share. It plans to sell approximately 103 million H shares, of which 90% are international offerings and 10% For the public offering, there is also a 15% over-allotment option. On August 24, China Duty Free Corporation (01880) announced the results of its IPO. Each share was priced at HK$158.00, with 100 shares in each lot. The winning rate for one lot was 100%, which shows that the market response was lackluster.
Calculated based on the issue price, China Duty Free will raise HK$16.274 billion in its listing in Hong Kong. It is the largest IPO in Hong Kong stocks so far in 2022. It previously set a financing record of HK$13.4 billion for Tianqi Lithium .
However, since the news of China Duty Free's overseas IPO came out, some investors are worried that the low-price issuance of Hong Kong stocks may dilute the interests of A shares shareholders, and the issue price of 158 Hong Kong dollars/share (approximately RMB 137/share) is far away It is lower than the latest stock price of China Duty Free A-shares, which also makes investors more worried.
As of the close of trading on August 24, China Duty Free A-shares closed at 189.8 yuan per share, a daily decrease of 1.65%. Wind terminal shows that in the past 20 days, China Duty Free's share price has fallen by 11.65%, and its current market value is 370.58 billion yuan. According to Futu Niuniu , on August 24, China Duty Free H-share black market trading suffered a break, once falling more than 7% from the issue price, and finally closing down 4.81%, closing at HK$150.4, excluding handling fees. The loss per lot was about HK$760.
Image source: Futu Niuniu app
It is worth noting that on the evening of August 24, the Hong Kong Stock Exchange announced that due to the Observatory issuing the No. 8 typhoon signal, its after-hours trading will start at 7 pm today (August 24) It ends at 140 hours. If the warning is not canceled before 07:00 tomorrow (August 25), Hong Kong stock trading will also be affected.
Consumption is returning, and China's leading duty-free company has attracted 9 cornerstone investors
According to the prospectus, China Duty Free's H-share listing has introduced a total of 9 cornerstone investors, with a total investment of HK$6.238 billion.
The nine cornerstone investors are China State-owned Enterprise Mixed Ownership Reform Fund Co., Ltd., Amorepacific Group , COSCO Shipping (Hong Kong) Co., Ltd., National Development and Investment Group , Shanghai Airport Investment Co., Ltd., and China Structural Reform Fund Co., Ltd., Hainan Free Trade Port Construction Investment Fund Co., Ltd., Oaktree Capital.
Image source: China Duty Free Prospectus
The addition of cornerstone investors has attracted public attention. Against the background of the shrinking global travel retail market, investing in a Chinese duty-free channel provider is not so much about taking a fancy to the traditional duty-free model as it is about targeting the dividends of China's new duty-free policy and China's consumption power that cannot be underestimated.
According to the Moody Davitt Report, the global duty-free market has experienced steady growth from 2011 to 2019, with sales of this type of goods increasing from US$46 billion to US$82 billion. Dufry, Lotte and Shilla San have also formed A three-legged pattern of traditional tax-free entities.
In 2020, this situation has changed. The global COVID-19 outbreak has had a huge impact on the international tourism market; on the other hand, China's new tax-free policy for Hainan's outlying islands was officially implemented in July 2020, increasing the tax-free limit for Hainan's outlying islands from 30,000 yuan/person/year to 100,000 yuan/person/year. Let overseas tourism consumption return quickly.
Previously, data from the South Korean Customs Service showed that South Korea’s duty-free sales in 2018 were approximately 120.4 billion yuan, ranking first in the world, and Chinese duty-free consumption in South Korea accounted for 73% of South Korea’s total sales. Zheshang Securities research report also mentioned that in 2018, the tax-free consumption contribution of Chinese residents accounted for 41% of the global total, reaching 219.5 billion yuan. The outflow rate of tax-free consumption among Chinese people is as high as 82%.
However, with this wave of consumption returning, duty-free consumption on Hainan’s outlying islands has risen rapidly. According to Hainan Provincial Department of Commerce and Department of Finance, the duty-free sales of Hainan's outlying islands in 2019 were only 13.61 billion yuan. By 2021, the total sales of Hainan's 10 outlying island duty-free shops will reach 60.173 billion yuan, a year-on-year increase of 84% in 2020.
China Duty Free is one of the biggest beneficiaries, with its revenue rapidly increasing from 48.013 billion yuan in 2019 to 67.676 billion yuan in 2021. During 2020, China Duty Free also acquired 51% of the equity of Hainan Duty Free Co., Ltd. and began preparations for the construction of Haikou New Seaport Duty Free City.
By 2021, China Duty Free's Hainan Islands Duty Free business alone will account for nearly 70% of the annual revenue, reaching 47.058 billion yuan, accounting for 78% of the total sales of Hainan Islands Duty Free that year. In the same year, in order to further expand into overseas markets, China Duty Free spent 126 million yuan to acquire 100% of the equity of China Travel Asset Company in Hong Kong and obtained a foreign exchange tax-free license. The Moody's Davitt Report pointed out that China Duty Free has become the world's largest travel duty-free operator that year.
Investment tax-free leader, Luzhou Laojiao Zhao Moutai Painting Ladle
Among the 9 cornerstone investors, the domestic local liquor manufacturing company Luzhou Laojiao has attracted much attention, with an investment amount of HK$622 million.
From the perspective of financial investment in , Shen Meng, director of Chanson Capital, believes that "the financial investment in consumer brands in China is just as a business partner, and may not really be optimistic about the tax-free business. In the final analysis, the tax-free business is still a retail circulation business. , no matter how large the volume is, the rate of return is still within the industry range, and it is not a high-growth, high-yield investment target.”
Luzhou Laojiao also made it clear in response to its investment in China Duty Free H shares that the investment was to deeply bind China Duty Free, because China Duty Free, as an important channel provider, is also its platform for expanding overseas markets. Previously, Luzhou Laojiao mentioned in its 2022 business plan that the company will speed up its layout in blank markets, and overseas is one of the important opportunities.
In fact, duty-free channels have always been an important export sales channel for local mid-to-high-end wine companies. According to Generation Research, alcohol will account for 8.8% of total sales in the travel retail market in 2021. Although more aromatic and fashionable brands have a smaller share, they are still an important category that cannot be ignored in sales.
It is not new for local wine companies to use duty-free channels to go overseas. As early as 2005, Kweichow Moutai cooperated with French Camus, a global duty-free channel operator, and settled in more than 300 duty-free shops in more than 30 countries and more than 60 international airports. In 2017, Moutai Group and China Duty Free Group had exchanges on working together to expand overseas markets.
In addition, Chinese liquor goes overseas through duty-free channels, which is also supported by policies to a certain extent. In March 2020, the "Implementation Opinions on Promoting Consumption Expansion and Quality Improvement and Accelerating the Formation of a Strong Domestic Market" jointly issued by the National Development and Reform Commission and 23 other departments mentioned that "a certain area of domestic product sales areas should be established in duty-free shops to guide relevant enterprises Develop high-quality and distinctive domestic products exclusively for duty-free channels, and build duty-free shops into an important platform for supporting high-quality domestic products, displaying independent brands, and spreading traditional national culture."
However, it is worth noting that, as a liquor with Chinese local characteristics, mid-to-high-end liquor has been strong in domestic sales, but it is not popular in the international market. As a domestic liquor exporter with a large scale, the overseas sales of Kweichow Moutai in 2021 was 2.62 billion yuan, with overseas revenue accounting for only 2.47%.
However, according to senior retail expert Wang Guoping, the purpose of investment by channel dealers is not just to add another sales channel. The purpose of investing is to gain more weight within the channel, which is reflected in various aspects such as product weight, display, and sales. "When suppliers invest in channels, channel chambers of commerce will give shareholder investors greater support and enjoy the benefits brought by channel growth."
In a price war, Hainan’s duty-free competition has become fierce.
On the one hand, the capital market has had mixed reactions to China Duty Free, on the other hand, its development prospects have also been challenged. The
prospectus shows that China Duty Free's overall gross profit margin has declined year after year, from 51.1% in 2019 to 32.9% in 2021; among which, the gross profit margin of duty-free goods fell from 51.2% to 37%. The overall gross profit margin in the first quarter of 2022 also dropped to 34.3% from 39.4% in the same period last year.
In this regard, China Duty Free explained that on the one hand it is the increase in sales costs, including increases in tariffs and other related taxes, and on the other hand it is discounts and promotions. Especially in the first quarter of 2022, in response to the reduction in passenger flow and temporary store closures due to the epidemic, discounts and promotions will be further increased.
Shen Meng told Times Finance that the competitive threshold for the duty-free business mainly lies in licenses and supply. When licenses and supply no longer have advantages, the only way to ensure business income is to increase marketing efforts.
Times Finance found that restrictions on China’s duty-free goods market have been relaxed in recent years. In addition to China Duty Free, three entities have been granted duty free licenses so far in 2020, and many companies are applying for China duty free licenses. In addition, international travel retail operators have taken the opportunity to expand into China's duty-free market.
The changes in the competitive landscape are particularly significant in the Hainan outlying island duty-free market. In 2021, the global boutique duty-free city cooperated by Swiss duty-free giant Dufry and Hainan Holdings will open in Haikou, and the membership system will be fully integrated. In the same year, Hainan Tourism Investment Duty Free Products Co., Ltd. cooperated with another giant, South Korea's Shilla.
In addition, the number of duty-free operating entities in Hainan has also increased. Data shows that in 2020, the Hainan Provincial Department of Commerce announced that there was only one duty-free operating entity in Hainan's outlying islands, China Duty Free and 4 outlying island duty-free shops. By the end of 2021, the number of duty-free business entities on Hainan's outlying islands has increased to 5, and the number of duty-free shops on outlying islands has increased to 10.
Most of China Duty Free’s revenue comes from offshore island tax exemption. In 2021, the revenue of China Duty Free's five outlying island stores in Hainan accounted for 69.5% of the company's total revenue in 2021, reaching 47.058 billion yuan. In the first quarter of 2022, this proportion reached 72.1%.
"In the future, competition in the entire Hainan market will definitely become more and more intense." Wang Guoping believes that since latecomers such as Hainan Tourism Investment and Hainan Development do not have much advantage when they first enter the market, price war is the preferred strategy. China Duty Free will only To keep up, "For China Duty Free, the gross profit margin of products and brands that are common in duty-free channels will further decline."
The competition in duty-free channels may be glimpsed from the product selling price. Times Finance noticed that the discounts of duty-free operators in the Hainan market are not very different, but the duty-free prices of most brands are much lower than the domestic counter retail prices, and the prices of some products are only 50% off the counter prices.
The prices of different tax-free business entities vary. For example, on China Duty Free's cdf Hainan Duty Free APP, two 100ml Estee Lauder small brown bottles of essence are priced at 1,227.85 yuan, while the same product is priced at 1,284.52 yuan on the Hainan Duty Free Mini Program, and six 15ml samples are also given away; a skin key CPB isolation is priced at 296 yuan on the cdf Hainan Duty Free APP, while it is 284 yuan on the Hainan Duty Free APP.
Image source: Northeast Securities Research Report
Many listed companies have entered the tax-free business, and a money-burning war is inevitable
If the decline in gross profits caused by price wars has become an imminent problem for China Duty Free, then, with more and more listed companies Striving for a tax-free license and entering the tax-free field are issues worth worrying about for CDFG.
As the leader in duty-free, China Duty Free has always relied on its near-monopoly duty-free license to maintain its industry status. However, Times Finance has learned that in addition to the increasingly crowded Hainan duty-free market, more companies are also eyeing the travel retail market. Wangfujing is one of them. Wangfujing not only acquired 100% equity of Hainan Outlets Tourism, but in August this year Wangfujing also stated on the investor interaction platform that the company is actively striving to implement the Beijing Port Duty Free Project.
Image source: Zheshang Securities Research Report
In addition, Bailian Shares , Wushang Group , Dashang Shares , Eurasia Group , Nanning Department Store , Youa Shares , Zhongbai Group, BBK , Dongbai Group , Haiyin Shares, etc. all stated that they have submitted applications for duty-free commodity business qualifications to relevant departments.
"Theoretically, all new licenses will impact China Duty Free's market. In addition to competition in the Hainan market, Wangfujing's local license is considered a strong rival that could potentially subvert China Duty Free. China Duty Free's ports and airport stores are far away from the city. There is a possibility of renovation in Wangfujing area, and they are all located in urban areas, so China Duty Free is planning to add many new duty-free shops in the city this time." Wang Guoping believes that fierce competition has made China Duty Free anxious to consolidate domestic channels. Choose to go to Hong Kong for financing.
According to the prospectus, China Duty Free’s investment in the domestic market does account for a large proportion.About 48.8% of the funds raised in Hong Kong this time are planned to be used to consolidate domestic channels, including investment in about 8 duty-free shops at major airports, about 20 duty-free shops at other ports, and about 20 duty-free shops in taxed travel retail projects.
However, affected by the epidemic, China Duty Free’s latest performance is not ideal. The prospectus revealed that in the second quarter of 2022, China Duty Free's revenue, gross profit and operating profit were lower than the same period in 2021, and the decline in revenue, gross profit and operating profit was more serious than the decline in the first quarter. The reasons are still store closures, logistics and operational disruptions in Shanghai, deepening discounts and promotions, and overall reduction in consumption.
Although the epidemic and competitive environment have brought certain uncertainties to China Duty Free, Wang Guoping believes that China Duty Free still has great advantages over other duty free business entities. “China Duty Free’s supply chain support capabilities are significantly better than For other channel vendors, self-sourced channels can guarantee lower cost prices and higher gross profit for unique products, while other channel latecomers with little say in the supply chain can only sacrifice profits to develop the market."
However, he also pointed out: "The tax-free market can be made even bigger. The real big competition has not yet begun, and a money-burning war is inevitable." According to Frost & Sullivan, China's duty-free market is still developing rapidly. At this stage, China's duty-free sales are expected to increase by 71% year-on-year to 138.5 billion yuan by 2023.
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