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中国国旅:removed from our top picks; d/g to Hold

评论: 0 | 发布者: shangshiguanli

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Time to trim as all positives have been factored in; d/g to Hold

We downgrade CITS to Hold from Buy and remove it from our top picks. Ournew price target is RMB 61, slightly down from RMB 63 before. In the longterm, we continue to be bullish on duty-free sector growth, believing thatChina’s duty-free market will enjoy double-digit growth as the government willfurther support bringing overseas consumption to domestic. CITS is theconsolidator and its market share is already more than 90%. However, if welook at the mid-term, CITS’s share price has factored in all its positives and itsvaluation seems no longer attractive.

Uncertainty over the new concessionaire rate of Shanghai Airport-risk

The duty-free licenses for T2, Pudong Airport and Hongqiao InternationalAirport expired in March 2018. Normally, the new bidding process kicks offwithin the next 6-8 months. Although details of the bidding time and biddingprice are yet unknown, it could be a potential risk here if the renewedconcessionaire rate is lifted significantly. The new concessionaire rate ofBeijing International Airport, for example, was much higher than before: T2was 47.5% and T3 was 43.5% from the previous 25-30%. We believe the newrate for Pudong and Hongqiao could be similar to that of Beijing InternationalAirport. We therefore factor in a 43% concessionaire rate in our model for2019, similar to that of T3 Beijing Airport, 6% higher than our previousestimate. Our revenue forecasts for 2018 and 2019 are unchanged.Consequently, our earnings are cut marginally by 3%/7% for 2018E/2019E.

Valuation/risks

CITS is trading at 32x on our 2019 earnings forecast, which we believe is nolonger attractive. Given the change of risk and reward profile, we downgradethe stock to Hold. We derive our TP based on DCF (8.1% WACC, 9% cost ofequity, beta of 0.9 and 3.0% TGR, unchanged). Upside risks include 1) a lowerthan-expected concessionaire rate in Shanghai, 2) downtown duty-free startstargeting Chinese visitors, 3) higher-than-expected growth in Haitang Bay mall.Downside risks include 1) an unfavorable government policy, 2) ecommercecompetition, 3) a higher-than-expected concessionaire rate in Shanghai, and 4)competition from OTAs.

(见习编辑:李洪力)

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