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

We expect CTG's leverage to improve to 2.2x-2.5x in 2022 as travel activities recover. We have not considered proceeds from the potential secondary Hong Kong listing of subsidiary, China Tourism Group Duty Free Co. Ltd. (CTG Duty-Free) in our base-case forecasts due uncertainty over the timeline, size, and usage of proceeds. The listing could further reduce the debt leverage. The stable outlook on CTG reflects our expectation that the resumption of domestic travel in China will support the company's growth, with increased sales from Hainan and online. Prolonged rent concessions by landlords and the move toward pure commission-based rents (for the near term and possibly longer) will support CTG's EBITDA. We forecast the group's debt-to-EBITDA ratio will stay below 3x

...Travel bans could temper growth in China Tourism Group Corp. Ltd.'s (CTG) duty-free business in 2021 and 2022. We expect sales growth in the company's stores in Hainan province and online to stay strong, thanks to increased domestic tourist traffic in China and an enhanced quota for duty-free purchases. However, second-half growth could be slightly slower owing to recent travel bans after the resurgence of COVID-19 cases in the country. As such, we anticipate a 25%-30% year-on-year revenue growth for the duty-free segment, despite the absence of international travelers. We expect an overall 20%-24% growth in revenue in 2021. CTG should maintain its EBITDA margin at 14%-16% over the next two years, mainly from the duty-free business, its largest EBITDA contributor. This will be helped by the extension of reduced fixed concessions by airport operators. CTG's non-duty-free businesses to continue to be hit by the prolonged pandemic and the company's low online exposure. Similar to 2020, the...

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