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China Tourism, Awaiting Hong Kong IPO, Touts Hainan Duty-free Haven For Tourist Dollars In Rivalry With Okinawa, Jeju

China Tourism looks to Hainan's offshore duty-free zone to capture domestic tourist dollars, which is expected to reach US$46.5 billion a year by 2025 The world's largest travel retailer's multibillion-dollar IPO is pending approval and may come as early as this quarter

China Tourism, Awaiting Hong Kong IPO, Touts Hainan Duty-free Haven For Tourist Dollars In Rivalry With Okinawa, Jeju

China Tourism Group Duty Free, the world's largest travel retailer by sales, is hoping to capture a slice of the growing multibillion-dollar spending by Chinese consumers in the offshore tax-free shopping zone on Hainan island.

China Tourism filed its listing application with the Hong Kong stock exchange in June, and aimed to make its debut this quarter, people familiar with the matter said. The application is still awaiting approval of the Hong Kong stock exchange's listing committee.

With government policies directed at boosting Hainan's offshore duty-free sector, China's southernmost province is developing into a shopping destination, with retail revenues forecast to grow to US$46.5 billion by 2025. This will help Hainan compete with Okinawa in Japan and Jeju in South Korea, the only other islands in Asia with similar offshore duty-free markets, analysts said.

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The Sanya International Duty-Free Shopping Complex in Sanya, Hainan province. Photo: Xinhua

The Sanya International Duty-Free Shopping Complex in Sanya, Hainan province. Photo: Xinhua

Here are a few things to know about China Tourism.

Has China Tourism benefited from the pandemic?

As international travel has yet to take off because of travel restrictions amid the Covid-19 pandemic, Chinese tourists who traditionally visit duty-free stores overseas have since turned to Hainan as an alternative, China Tourism Group said in its filing.

"We have captured the core offshore duty-free sales channels in Hainan, including Haikou and Sanya airports, [and its] core downtown areas," the company said.

Chinese residents spent over 700 billion yuan (US$108.4 billion) on duty-free and duty-paid products overseas in 2019, about 14 times the spending on China's duty-free market during the same year, according to research firm Frost & Sullivan.

Some of the money that has been redirected back home has not been triggered solely by the pandemic. An offshore duty-free sector is part of the government's plan to develop Hainan as a free-trade port, a key plank of President Xi Jinping's policy to boost domestic consumption. Sales of consumer goods in China for the first eight months this year rose 3 per cent from a year ago.

The Beijing-based company claims to have almost 100 per cent share of the offshore duty-free retail market in Hainan, where it opened its first offshore duty-free store in downtown Sanya in 2011. This has grown to five stores today. It is one of the six entities that have permits to operate on the island.

What do we know about the company?

Founded in 1984, China Tourism Group had a market cap of 507.6 billion yuan on the Shanghai Stock Exchange as of Wednesday. State-owned CTG, previously known as China Travel Agency Hong Kong, is its controlling shareholder with a 53.3 per cent stake.

With 194 stores in China, Hong Kong, Cambodia, Macau, its first-half net profit surged over five times year-on-year to 5.4 billion yuan year on year, it said in its interim report. This came on the back of favourable policies to promote duty-free shopping on the island since July 2020, such as the expansion of the per person duty free purchase limit to 100,000 yuan per year from 30,000 yuan.

"The Hainan offshore duty-free allowance is the most generous in the world," said a KPMG report titled Travel retail market in Hainan free trade port - towards a golden future released in May.

What's the state of Hong Kong's IPO market?

A multibillion-dollar IPO by China Tourism Group could be a shot in the arm for the Hong Kong IPO market. The biggest deal of the year so far was by short-video platform Kuaishou Technology, which raised US$5.4 billion in January.

During the third quarter, 23 IPOs raised US$5.6 billion, 66 per cent lower than the US$16.6 billion from 38 deals in the same period last year, according to Refinitiv data.

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