IPO Pricing | China Duty Free Group receives 1.06x subscription, priced at HK$158 per share

Futu Information reported on August 24, this Wednesday$CTG DUTY-FREE (01880.HK)$Announcement: The company will issue 102,761,900 shares at HK$158 per share, with a board lot of 100 shares, and is expected to be listed on August 25.

During the public offering phase, China Duty Free Group received 1.06 times subscription, with the final number of shares allocated to the public offering being 5.1382 million shares, accounting for approximately 5% of the total number of offered shares (before any exercise of over-allotment option). A total of 5,669 valid applications were received, with a 100% success rate for one-lot subscriptions, ensuring that subscribing for one lot would secure one lot.

In addition, the international offering was oversubscribed, with the final number of shares amounting to approximately 97.6237 million shares, equivalent to about 95% of the total number of offered shares (before any exercise of over-allotment option). Futu Information has compiled the relevant data in the table below:

In terms of use of proceeds, the company will allocate approximately HKD 15.892 billion net proceeds from the global offering as follows: about 49.7% for strengthening domestic channels, about 22% for expanding overseas channels, about 13.2% for improving supply chain efficiency, about 1.5% for upgrading information technology systems, about 3.7% for marketing and further enhancing the membership system, and about 10% for replenishing working capital and other general corporate purposes.

China Duty Free Group was founded in 1984 and, after nearly 40 years of development, has become the world's largest travel retail operator, focusing on selling high-quality duty-free and taxed goods to inbound and outbound travelers and mid-to-high-end customers, providing an all-around shopping experience. According to Frost & Sullivan, based on sales revenue, the company’s global ranking has been continuously rising over the past decade, from 19th place in 2010 to 12th in 2015, then moving up to fourth in 2019, and taking the top spot globally in 2020 and 2021. In 2021, the company accounted for 24.6% of the global travel retail market share.

Centered around duty-free services, China Duty Free Group develops its travel retail business in China and is committed to expanding its global footprint. The company is the only retail operator in China covering all duty-free sales channels, including border stores, island stores, downtown stores, cruise ship stores, onboard stores, and supply shops for foreign vessels. The company owns the largest number of duty-free shops nationwide. Its prominent market position largely relies on the historical and regulatory landscape of China's duty-free industry.

As of December 31, 2021, China Duty Free Group is one of the nine entity groups in China holding a duty-free business license, one of the five entity groups licensed to operate duty-free border shops nationwide, and the only group authorized to run all types of duty-free shops in China. As of the latest practicable date, the company operates 193 stores, including 184 stores across 100 cities in 28 provinces, municipalities, and autonomous regions in China, as well as 9 overseas duty-free shops, including 7 in Hong Kong, Macau, and Cambodia, and 2 cruise duty-free shops.

Financially, from 2019 to 2021, the company's revenue was RMB 48 billion, 52.6 billion, and 67.7 billion respectively, with a compound annual growth rate of 18.72%. For the fiscal year 2021 and the first quarter of 2022, revenues were RMB 18.1 billion and RMB 16.8 billion, respectively.

From 2019 to 2021, the company's net profit was RMB 5.5 billion, 7.1 billion, and 12.4 billion respectively, with a compound annual growth rate of 50.8%. For the fiscal year 2021 and the first quarter of 2022, net profits were RMB 3.4 billion and RMB 2.9 billion, respectively.

In terms of the industry, sales of duty-free goods have become an increasingly important part of China's travel retail market, accounting for 52.2% of China's travel retail market in 2017, 59.5% in 2021, and expected to reach 73.8% by 2026. China's duty-free market has also become an increasingly important part of the global duty-free market, with its share growing from 11.2% in 2017 to 28.8% in 2021, and expected to increase further to 44.8% by 2026. The chart below shows the market size of China's duty-free market and its share of the global duty-free market from 2017 to 2026.

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