China Tourism Group Corp. Ltd. And China Travel Service (Holdings) Hong Kong Ltd.

The stable outlook on CTG reflects our expectation that the resumption of China's domestic travel will help accelerate the company's recovery, as indicated by sales growth in Hainan and online. Rent concessions by landlords and the move toward pure commission-based rents (for the near term and possibly longer) will reduce the pressure on EBITDA. We forecast the group's debt-to-EBITDA ratio will improve to below 3x by 2020, compared with our previous expectation of 4.0-4.5x. We could lower the rating if CTG significantly increases its capital expenditures or pursues sizable acquisitions, pushing its debt-to-EBITDA ratio above 3.0x. The company has been investing in in-town shopping and other retail outlets in Hainan. Depending on how the commission-based rent payments are structured, there

...Growth in online and Hainan duty-free business support recovery in 2020. Resumption of domestic travel and favorable policy changes are important drivers of China Tourism Group Corp. Ltd.'s (CTG) faster-than-expected recovery. After the outbreak in early 2020, CTG reacted quickly to ramp up online sales to target travelers who had purchased goods from CTG previously. At the same time, sales growth in its Hainan stores is very strong, thanks to domestic tourist traffic and enhanced quota for duty-free purchases. As such, we only anticipate a 0% to 5% year-on-year revenue decline for the duty-free segment, despite the absence of international travelers. Nonetheless, we are expecting an overall 22%-26% decrease in revenue in 2020 due to weakness at non-duty-free segments before rebounding in 2021 as international travel gradually returns. The operation of CTS HK will face more pressure given the intense competition and lower online exposure. We expect the travel agency business, theme parks,...

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