State-Owned Conglomerate China Travel International Investment Hong Kong Plans to Spin Off Tourism Property Business

On the evening of October 12, China Travel International Investment Hong Kong Limited (CTI, 0308.HK) announced a proposed internal reorganization of its tourism property business. This involves placing the business under a privately held company and forming a private company group, followed by a spin-off of this group from CTI through a distribution in specie of the private company's shares. The private company group will cease to be a subsidiary of CTI and will be held by the controlling shareholder and those shareholders who elect to receive the distribution in specie. CTI will continue to operate the retained businesses.

The announcement revealed that CTI's tourism property business continued to perform poorly in the first half of this year. The company's management expects that there are certain uncertainties regarding the future profitability of the tourism property business. Property development is a capital-intensive business with inherent cyclical risks.

Through the proposed distribution, CTI aims to reduce its overall debt level and minimize its exposure to the volatile property market. The company will also streamline its operations and focus its resources on scenic tourism areas and other businesses, including but not limited to theme parks, natural and cultural scenic destinations, and supporting services for tourist attractions. These businesses possess higher growth potential and are expected to contribute to the company's improved profitability in the long run.

CTI disclosed that the proposed distribution is expected to result in a loss of approximately HK$160 million being recorded in its consolidated income statement and consolidated statement of comprehensive income.

Public information shows that CTI, subordinate to China Tourism Group, was established in July 1992 and listed on the Hong Kong Stock Exchange in November of the same year. The company is primarily engaged in tourist attractions and related businesses, travel documents and related services, hotel operations, passenger transportation, etc.

In the first half of this year, CTI reported a loss. Its revenue decreased by 8% year-on-year to HK$1.974 billion, it recorded a pre-tax loss of HK$8 million (compared to a pre-tax profit of HK$165 million in the same period last year), a loss attributable to shareholders of HK$87 million, and a profit attributable to the operating businesses of HK$14 million, representing a 91% year-on-year decrease.

As of the close on October 13, CTI's stock price was HK$1.66 per share, an increase of 8.5%.