China Duty Free Group parent CTG raises $2bn from Hong Kong listing

By Charlotte Turner |

China Tourism Group Duty Free Corporation Limited (CTG) has raised approximately HK$15,892.3 million/US$2 billion (at current exchange rates) from its listing on the Hong Kong Stock Exchange launched on 12 August, based on an offer price of HK$158.00 per share and trading is expected to commence tomorrow (25 August).

 

“For CTG, the $2bn offering is a more downsized financing vs last year when they were seeking around $5 billion,” Angela Han Lee for Bloomberg Intelligence – APAC Gaming & Hospitality confirmed to TRBusiness last week.

 

“This is reflective of a tougher market environment and poorer near-term earnings visibility due to Covid disruptions. Nonetheless, the funding could give them more flexibility to pursue overseas expansion and other M&A that could help them shore up global [duty free] market share in the long-term.”

 

The net proceeds from the global offering, after deduction of the underwriting fees, commissions and expenses payable by CDFG, are estimated to be approximately HK$15,892.3 million; assuming the over-allotment option is not exercised.

 

The downsized offering is 'reflective of a tougher market environment and poorer near-term earnings visibility due to Covid disruptions' says Angela Han Lee.

The downsized offering is ‘reflective of a tougher market environment and poorer near-term earnings visibility due to Covid disruptions’, says Angela Han Lee, particularly in the popular holiday destination of Hainan.

 

If the over-allotment option is exercised in full, the company will receive an additional HK$2,398.7 million for 15,414,200 shares.

 

Bloomberg Intelligence told TRBusiness that it believes the company’s earnings outlook in 2023 to be positive and that a gradual easing of Covid measures next year should facilitate a quicker ramp up of its new Haikou Mall, delivering a sizeable boost to Hainan-generated duty free sales.

 

The long-serving CDFG President, Charles Chen.

The long-serving CDFG President, Charles Chen.

CTG outlines investment plans 

In a company statement, China Tourism Group Duty Free Corporation Limited (CTG) says it intends to use 49.7%, or HK$7,898.0 million of the HK$15.9m net proceeds to reinforce its domestic business; 2.9% or HK$465.8 million across its airport business; 0.7%, or HK$116.5 million at the ports; 3.7%, or HK$582.3 million in duty paid and a substantial 42.4%, or HK$6,733.4 million, will be used to invest in offshore and downtown duty free stores.

 

CDFG breaks this down further, instructing that 22.0%, or HK$3,493.7 million, will be used for expanding overseas channels, among which, approximately 8.1%, or HK$1,281.0 million, will be used to open downtown stores overseas.

 

“Approximately 4.4%, or HK$698.7 million, will be used to expand our port stores overseas; approximately 2.2%, or HK$349.4 million, will be used to expand our stores on more cruise ships; and approximately 7.3%, or HK$1,164.6 million, will be used to selectively pursue acquisitions of travel retail operators overseas.”

 

CDFG will invest 13.2%, or HK$2,096.2 million, in improving supply chain efficiency, among which, around 6.6%, or HK$1,048.1 million, will be used to invest in developing its logistics centres; 1.5%, or HK$232.9 million to upgrade our existing supply chain and 5.1%, or HK$815.2 million, will be used to consolidate ‘upstream procurement systems’.

 

“Approximately 1.5%, or HK$232.9 million, will be used to upgrade our information technology system,” added the leading travel retailer.

 

CDFG also revealed that 3.7%, or HK$582.3 million, will be used for marketing and further improving its customer loyalty program, among which, 2.2%, or HK$349.4 million, will be used for marketing; 1.5%, or HK$232.9 million for developing its membership system by attracting new customers to join its customer loyalty program and to improve the membership benefits for existing members and 10.0%, or HK$1,589.2 million, will be used for working capital and other general corporate purposes.

 

 

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