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Fri, 22 May 2015
Equi ty Research EGL Holdings (6882 HK) Tour ism/ China
Fly me to the moon
EGL Holdings (6882 HK, “EGL”) is a leading travel company in Hong Kong
providing package tours and FIT products to more than 250 cities in over 60
countries. With experienced management and direct land operations in Japan,
EGL has built up unique competitive advantages to ride on the massive growth in
Japan tours and Chinese outbound travel market.
Everything Good and Long-lasting: EGL, in other words, has the
customers’ best interests at heart; winning trust and creating a strong,
indelible image at the same time. Unlike other travel agents, EGL carved out
its leading position through solid ground work – handling operations on the
ground in Japan’s travel tour business with down-to-earth management. By
setting up JVs with local land operators in other countries, EGL will replicate
its successful model to drive sustainable growth.
Strong outlook for FY15E results: Depreciation of the Japanese Yen plus
drop in fuel costs have led to drop in air ticket prices, giving Japan 44%
growth in the number of visitors in 1Q15. By long term relationships with
suppliers, EGL has strong capability to secure hotel rooms, flight bookings
and local bus transportations in peak seasons. We believe the recent robust
demand growth in Japan-bound package tours will give high visibility for the
strong results of EGL in FY15E.
Making a quantum leap in China market: Under CEPA, EGL is expected to
set up branches in China as restrictions have been removed for HKSS. In
addition, EGL will co-operate with other qualified travel agencies in China to
extend their award-winning travel products distribution network into China.
We believe EGL will have a re-rating in valuation by capturing the explosive
Chinese outbound travel market through this two-prong development.
Value play in a hot sector. Initiate BUY: Thanks to the robust demand
growth and favorable policies, Chinese listed travel companies are trading at
high valuation of average 59x forward PE by strong market sentiment in
tourism. As EGL is trading at a deep discount of 86% or 8.0x FY15E PE, we
initiate our BUY rating with TP HK$3.6, representing 87% upside.
Bruce Yeung
+852 2135 0214
Initial Coverage
BUY
Close price: HK$1.93
Target Price: HK$3.6 (+87%)
Key Data
HKEx code 6882
12 Months High (HK$) 2.17
12 Month Low (HK$) 1.32
3M Avg Dail Vol. (mn) 3.33
Issue Share (mn) 502.45
Market Cap (HK$mn) 969.73
Fiscal Year 12/2014
Major shareholder (s) Evergloss (74.6%)
Source: Company data, Bloomberg, OP Research
Closing price are as of 21/5/2015
Price Chart
1mth 3mth 6mth
Absolute % 3.8 -0.5 N/A
Rel. MSCI CHINA % 6.1 -18.0 N/A
Company Profi le
EGL Holdings Company Limited operates as
a travel company. The Company provides
travel and tour packages for more than 250
cities in over 60 countries.
Exhibit 1: Forecast and Valuation Year to Dec (HK$ mn) FY13A FY14A FY15E FY16E FY17E
Revenue 1,647.2 1,685.2 1,915.7 2,123.3 2,357.9
Growth (%) 20.7 2.3 13.7 10.8 11.0
Net Profit 102.8 74.5 121.6 144.7 171.8
Growth (%) 150.5 (27.5) 63.2 19.1 18.7
Diluted EPS (HK$) 0.257 0.148 0.242 0.288 0.342
EPS growth (%) 150.5 (42.3) 63.2 19.1 18.7
Change to previous EPS (%) 0.0 0.0 0.0
Consensus EPS (HK$) N/A N/A N/A
ROE (%) 53.1 32.6 41.2 36.4 35.1
P/E (x) 7.5 13.0 8.0 6.7 5.6
P/B (x) 3.5 4.1 2.7 2.2 1.8
Yield (%) 0.0 0.0 6.3 7.5 8.9
DPS (HK$) 0.000 0.000 0.121 0.144 0.171
Source: Bloomberg, OP Research
0.0
0.5
1.0
1.5
2.0
2.5
Nov/14Dec/14 Jan/15 Feb/15Mar/15 Apr/15
HK$6882 HK MSCI CHINA
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 2 of 53
Table of Contents
Table of Contents ......................................................................................................................................... 2
Investment Summary ................................................................................................................................... 3
Industry overview ......................................................................................................................................... 4
Everything Good and Long-lasting ..............................................................................................................10
Strong outlook for FY15E results ................................................................................................................21
Making a quantum leap in China market .....................................................................................................26
Value play in a hot sector. Initiate BUY ........................................................................................................32
Investment risks ..........................................................................................................................................35
Management background ...........................................................................................................................37
Company history .........................................................................................................................................39
Corporate structure .....................................................................................................................................41
Appendix I: Travel industry market data details ...........................................................................................42
Appendix II: Awards ....................................................................................................................................45
Appendix III: Employee structure ................................................................................................................46
Appendix IV: Properties and branches details .............................................................................................47
Appendix V: Regulations on the industries ..................................................................................................48
Appendix VI: Suppliers details .....................................................................................................................49
Financial Summary .....................................................................................................................................50
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 3 of 53
Investment Summary
The earth has music for those who listen
EGL is one of the largest travel agencies in Hong Kong providing package tours
and free and independent travelers (“FIT”) products to more than 250 cities in
over 60 countries. Although the current price of EGL is 39% higher than the IPO
listing price in November 2014, we still believe the company has strong upside
potential given (1) unique direct land operations to give strong competitive edge
to Japan-bound travel products (2) a strong earnings growth in FY15E from
Japanese Yen (“JPY”) depreciation (3) capturing the robust outbound travel in
China market (4) undemanding valuation of 8.0x FY15E with 6.3% dividend yield
representing a massive discount of 86% to peers average.
Apart from outsourcing the land operations to third party local travel companies in
the destinations, EGL directly arranges hotel accommodation, bus transportations,
meals and sightseeing activities for Japan-bound package tours. The direct land
operations give EGL strong competitive edge in cost control, quality control,
relations with suppliers, flexibility in product design and development plus wider
products range in FIT products. Although EGL only ranked third with 9.3% of total
market share in Hong Kong, EGL achieved top market share of 31.6% for Japan
tours in 2013 and 18.5% gross margin or 8.3 ppt higher than Non-Japan tours in
FY14.
With JPY depreciating more than 12% and crude oil price dropping over 35%
since 4Q14, stronger real spending power in Japan and lower air ticket costs
triggered strong growth in Japan travel in early 2015. Japan recorded 44% growth
in total number of visitors in 1Q15, with tourists from Hong Kong and China
leading the growth by 60% and 93% respectively. We expect EGL will record
strong FY15E results as high operating leverage with asset-light business nature.
Under the new CEPA Agreement signed on December 2014, 5 travel agency
companies by Hong Kong Service Supplier (“HKSS”) are allowed to operate
Chinese outbound travel in Guangdong province on a pilot basis. Besides, by
teaming up with other local agencies in the cities of Guangdong Province, such
as Shenzhen, Zhongshan and Zhuhai, EGL is switching on their twin engines to
capture the robust demand in Chinese outbound travel in 2H15. As Chinese
mainland travelers have been drifting from low-end Hong Kong & Macau into
mid-high end Japan & Korea, we believe EGL has strong edge to expand in
China market.
We expect EGL will have 63% net profit growth to HK$122 mn or 8.0x FY15E PE,
representing 86% discount to peers average and a 3-year CAGR of 32%. Since
the company plans at least 50% payout ratio on strong cash flow, the forward
dividend yield of 6.3% offers a huge safety margin of best risk-reward ratio. As
travel industry is one of the hottest investment sectors based on tailwind in
Chinese outbound travel and favorable policies, we believe EGL will have a
strong re-rating after the market realizes the treasure inside and our target price
of HK$3.6 implies an attractive 87% upside on target 15x FY15E PE.
EGL has strong upside potential
given direct land operations,
strong growth in FY15E,
expanding into China market and
deep discount to peers
Direct land operations give EGL
strong competitive edge and
result 8.6 ppt higher in gross
margin and top market shares of
31.6%
Japanese Yen depreciation and
drop in air ticket prices triggered
a strong growth in Japan travel in
1Q15.
New CEPA Agreement and
cooperation with local travel
agents open up opportunities for
EGL to capture strong growth in
China market
EGL is trading at 8.0x FY15E PE
with 6.3% dividend yield,
representing 86% discount to
peers average. Our TP implies a
best risk-reward ratio of 87%
upside.
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 4 of 53
Industry overview
The time to relax is when you don’t have time for it
Travel spending is high income elasticity
Demand for vacation, recreation and leisure travel has been generally increasing
with the rising levels of household disposal income. Since travelling and holidays
are superior goods with high income elasticity, the growth of travel spending will
be higher and accelerate than that of disposal income as people have more
desire for recreation and pleasure when they get wealthier.
In Hong Kong and Macau, the average nominal annual household disposal
income increased at CAGR of 4.1% and 11% to HK$615,000 and MOP466,600 in
2013 respectively. Average annual household spending on outbound travel
increased at a higher CAGR of 7.7% and 17.9% to HK$71,066 and MOP90,773
in 2013, as the proportion of disposal income to spend on outbound travel
increased by 1.5ppt and 4.2ppt to 11.6% and 19.5% from 2009 to 2013 in Hong
Kong and Macau respectively.
With higher disposal income and higher proportion to spend on outbound travel, it
is expected average annual household spending on outbound travel will increase
at CAGR of 5.2% and 6.5% from 2014E to 2018E in Hong Kong and Macau
respectively. We think EGL will have higher than market average growth thanks to
the leading position by well-established brand and competitive strength in land
operations in Japan.
Exhibit 2: Hong Kong average annual household spending on outbound
travel
Source: Ipsos Report, OP Research
52,847 58,320
62,985 65,676 71,066
74,949 78,996
83,183 87,508
91,554 10.1%10.8% 10.9% 11.1%
11.6% 11.8% 12.0% 12.3% 12.4% 12.6%
0%
2%
4%
6%
8%
10%
12%
14%
0
20,000
40,000
60,000
80,000
100,000
120,000
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
Average annual household spending on outbound travel
% of average annual household disposable income
(HK$)
Spending on outbound travel has
a higher growth than that of
disposal income
10%-20% of disposal income will
be spent on outbound travel in
developed markets
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 5 of 53
Exhibit 3: Macau average annual household spending on outbound travel
Source: Ipsos Report, OP Research
Moreover, with the development of airport infrastructure and more options in low
cost airlines, people tend to travel to farther destinations by air rather than nearby
destinations by land transport. The number of Hong Kong resident departures by
airport increased at a CAGR of 6.7% to 8.6mn in 2013, outpacing 0.6% CAGR in
total number. We believe it will benefit those travel agents focusing on mid-high
end package tours with medium-haul destinations, such as Japan, Korea and
Taiwan, where EGL has over 50% revenue generated from Japan-bound travel
products.
Exhibit 4: Number of Hong Kong resident departures by airport
Source: Census and Statistics Department, HKSAR, OP Research
46,934
58,436
68,995 75,428
90,773 99,849
107,838 115,386
122,310 128,425
15.3%
17.8%16.5% 17.0%
19.5%
21.1% 21.5% 21.7% 21.9% 21.7%
0%
5%
10%
15%
20%
25%
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
Average annual household spending on outbound travel
% of average annual household disposable income
(MOP)
6,224 6,322 6,824 7,130
7,809 8,596
7.6% 7.7%8.1%
8.4%
9.2%
10.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0
2,000
4,000
6,000
8,000
10,000
2008 2009 2010 2011 2012 2013
Airport % of total
('000)
Higher adoption of air flight travel
will benefit travel agents focusing
on medium-haul destinations,
such as Japan, Korea and Taiwan
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 6 of 53
Travel companies maintain a core role for travel products and service
In addition to selling tour products, arranging transportation, accommodation and
catering, travel companies also provide advisory services to customers for
suitable places to visit and design theme tours with special travel elements, such
as overseas wedding, photo shooting, gourmet restaurants and sport events.
Because of difference in languages and time zones, customers still prefer to buy
package tours from travel companies to avoid the difficulties in planning and
arranging travel itinerary in other countries. Besides, with tour escorts to take
care of details during the trips, such as safety and cultural difference, travel
companies maintain a core role in the industry by providing a one-stop travel
solution.
The aggregate revenue for the travel service industry in Hong Kong and Macau
increased at a CAGR of 7.5% to HK$16,855 million in 2013. It is expected to grow
at a CAGR of 6.0% to HK$22,512 million in 2018E. Within this aggregate, 61.8%
was generated by package tours and 38.2% by FIT products in 2013. The growth
of package tours and FIT products is expected to remain stable from 2014E to
2018E at CAGR of 6.3% and 5.6% respectively.
The major costs of package tours are mainly for air tickets and hotel
accommodation, which have generally accounted for 50% and 25% of total cost
of sales and fluctuate with international oil prices as well as demand for hotel
rooms in destinations. Although the selling prices of package tours and FIT
products are normally determined on a cost-plus basis of the travel elements,
customers are willing to pay premium for products and services offered by travel
companies with strong brand recognition and track records of service quality as
there have been smaller travel agents going bankrupt or having serious safety
incidents, such as the Manila hostage crisis, in the past. Since EGL management
has down-to-earth working style as tour guide, their products are designed to
customer needs, such as flexible package tour itinerary, car rental services with
FIT products and custom-made travel insurance. We believe EGL will enjoy a
greater growth than the market average in the long run.
Exhibit 5: Total travel service industry revenue in Hong Kong and Macau
for outbound travel
Source: Ipsos Report, OP Research
11,641 12,371 12,276 13,167 14,966 15,712 16,085 17,063 18,120
19,810
975 1,154 1,068
1,490
1,899 2,090 2,291
2,489 2,695
2,902
12,616 13,525 13,344
14,657
16,865 17,802 18,376
19,552 20,815
22,712
0
5,000
10,000
15,000
20,000
25,000
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
Macau
Hong Kong
Total travel service industry revenue in HK and Macau (outbound)
(HK$ mn)
Travel companies provide
one-stop solutions to travel in
other countries
Travel service industry revenue
will have a CAGR of 6% during
2014E-2018E
Air tickets and hotel room
charges accounted for 50% and
25% of the total cost of sales
Brand recognition and service
quality are the key to gaining
customers in competitive travel
market
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 7 of 53
Exhibit 6: Total travel service industry revenue by products
Source: Ipsos Report, OP Research
Key drivers for travel service industry
According to Ipsos Report, the growth of travel service industry in Hong Kong and
Macau is mainly driven by (1) economy-driven outbound travel behavior (2)
ageing population (3) holidays for working population and (4) availability of new
flight destinations and flight times. As stated before, travel spending is highly
correlated to household disposal income. Robust economic growth and increased
household disposal income fuel stable growth, increasing demand for travel
products and services. Besides, Hong Kong had around 1.1 million people aged
between 60 and 79 in 2012, which will continue to increase at a CAGR of 5.3% to
1.4 million by 2017. With accumulated wealth and amply leisure time, the aged
population is expected to look for relaxing outbound travel experience by enrolling
into all-inclusive and hassle-free package tours designed to fit their mobility and
pace. For example, cruise tours and high speed railway tours are becoming more
popular. On the other hand, the working population of 3.6 million people in Hong
Kong is having more intensive and stressful lifestyle with longer working hours.
Outbound travel would be an easy way for them to relax and relieve pressure
during holidays to drive the demand for pre-arranged and convenient package
tours. Additionally, the rise of low-cost carriers with new flight routes and new
destinations, with increased flights and frequency to old destinations, creates
higher flexibility for travel arrangements and driving air traffic growth at a CAGR
of 7.1% from 2009 to 2013. By covering 250 cities in over 60 countries and its
own land operations in Japan, we believe EGL has the flexibility to capture the
growth drivers of the industry through designing different types of theme tours
and package tours with unique travel elements.
Package tours61.8%
FIT 38.2%
Total 2013 revenue: HK$16,855mn
CAGR (14E-18E)Total 6.0%Package tour 6.3%FIT 5.6
Travel service industry are driven
by economy, ageing population,
working population and flight
availability
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 8 of 53
Competitive landscape: A consolidated market with few leaders
In 2013, the top five licensed travel companies in Hong Kong and Macau
accounted for almost 50% of the total industry revenue in 2013 largely due to (1)
scale of establishment (2) industry recognition and (3) abilities to explore new
travel options. With economy of scale, larger travel agents can secure air flights
at peak season by chartered flights. For the HK$16,855 million aggregated
revenue of travel service industry in 2013, EGL ranked the third and had 8.9%,
8.9% and 9.3% of the total market share in 2011, 2012 and 2013 respectively.
Local land operations in Japan and long term direct relations with suppliers
enable EGL to design unique tour itinerary and to secure hotel rooms as well as
bus transportation in peak seasons. EGL shows their competitive strength and
has been the top travel company in the Japan-bound package tour market in
Hong Kong with 32.5%, 29.6% and 31.6% market share in 2011, 2012 and 2013
respectively.
With unique featured items, such as car rental services, theme part tickets,
railway passes and custom-made insurance, EGL can differentiate their FIT
products in the competitive and homogeneous market. EGL was the top travel
company in the Japan-bound FIT market in Hong Kong with 16.2%, 15.2% and
14.3% market share in 2011, 2012 and 2013 respectively.
EGL has direct access to travel elements supply
In 2013, there were 1,466 of 1,698 licensed travel companies in Hong Kong
providing outbound travel products and services according to Ipsos Report.
Because of smaller market, there were 207 licensed travel companies providing
inbound and outbound travel products and services in Macau. The large number
of participants in the market is due to relatively low entry barrier for travel agent
licences. However, most of the travel companies act somehow like third party
agent without direct access to the travel elements supply as it involves much
more investment and operating history to secure the necessary ties with
suppliers.
IATA Passenger Agency Programme is a global program designed to facilitate the
secure distribution and sale of airline tickets. Only IATA accredited agents are
allowed to represent the member airlines of IATA to sell international air
passenger tickets. In July 2014, there were only 322 and 18 IATA accredited
travel companies in Hong Kong and Macau respectively. With their long operating
history and dedicated involvement in the industry, EGL Tours and EGL Macau
have been IATA accredited agents since 1991 and 2008, respectively.
Top five companies accounting
for almost 50% market shares
EGL ranked the third and had
9.3% market shares in 2013
EGL ranked first and had 31.6% of
Japan-bound package tour
market share in 2013
EGL also ranked first and had
14.3% of Japan-bound FIT market
share in 2013
1,698 and 207 licensed travel
companies in Hong Kong and
Macau in 2013
Only IATA accredited agents are
allowed to sell air tickets for its
members
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 9 of 53
Exhibit 7: Travel service industry market shares
Source: Ipsos Report, OP Research
Company A10.8%
Company B10.6%
EGL9.3%
Company C8.5%
Company D6.9%
Others53.9%
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 10 of 53
Everything Good and Long-lasting
Success comes from Within not Without
Founded in 1987, EGL strives to deliver consistent quality tours, travel products
and services that leave a pleasant impression with customers by having
customers’ best interests at heart as epitomised by “EGL – Everything Good and
Long-lasting”. Under the award-winning “東瀛遊 EGL Tours” brand, EGL
became a leading travel company, ranking third with 9.3% market share, with
354,434 customers purchasing their travel products to over 250 cities in more
than 60 countries in 2013. We believe EGL, as a leading travel company with a
reputable brand of safe and carefree travelling, can utilize their market-leader
status and established business model to capture the industry growth trend to
increase market share under multiple expansion opportunities.
Unlike other travel agents, that are driven by down-to-earth management, EGL
created its leading position by its own travel tour ground handling operations in
Japan and they were at the top in Japan-bound package tour market and
Japan-bound FIT products market with 31.6% and 14.3% shares in 2013
respectively. EGL management possesses over 30 years of experience in the
travel industry and has been working as the same team in the last 28 years. In
order to control products and services quality, rather than outsourcing to third
party local land operators with less costs in investment and staff training, EGL has
its own land operations in the destinations for Japan-bound package tours to
achieve higher customer satisfaction and repeat customers (28.6%, 29.5% and
29.0% in 2011, 2012 and 2013 respectively).
Special business model derives special value
In order to lower the investment costs and human resources involvement, travel
agents will only arrange flights and sometimes hotel accommodations to run a
package tour. They will normally outsource land operations in the destinations to
third party travel service providers. Tour escorts will be assigned to accompany
the tour group throughout the tour to serve customers and ensure satisfactory
performance of the land operators. Like industry peers, EGL adopts the
outsourcing model for Non-Japan Tours as their expertise is on Japan tours as
illustrated by the brand name.
EGL secure their competitive advantages in Japan Tours by directly carrying out
the tour operation, which includes the arrangements for hotels accommodation,
local transportation, meals, guides and sightseeing activities in the destinations.
EGL tour escorts for Japan Tours are provided with up-to-date training to meet
the service standard to have good understanding in Japanese culture, its
customs and information of scenic spots and tourist attractions.
EGL’s motto: “Strive for
consistent improvement of
high-quality service, with
customer in our heart and
sincerity”
High customer satisfactory
proved by high percentage of
repeat customers
Like its industry peers, EGL
adopts outsourcing model for
Non-Japan Tours
EGL has expertise in Japan Tours
by its direct land operations
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 11 of 53
Exhibit 8: EGL business model
Source: Company, OP Research
Competitive edges of EGL
Without outsourcing to third party local operators, EGL can achieve better gross
margin in Japan-bound tours through centralized procurements and selection of
cost effective travel elements such as hotels, restaurants and buses. With
centralized procurements, EGL has better bargaining power with suppliers to
lower costs. Thus, EGL has relatively higher gross margin in Japan tours than
tours to other destinations. In FY14, gross margin of Japan tours were 8.3 ppt
higher than Non-Japan tours. (GPM: 18.5% for Japan tours vs 10.2% for
Non-Japan tours in FY14)
Exhibit 9: Package tours GPM by destinations
Source: Company, OP Research
Suppliers
Travel service
providers
Travel
Intermediaries/
sub-agencies
EGL HoldingsConsumers
• Airlines
• Hotels
• Tour bus
companies
• Restaurants
• Car rental
companies
• Railway operators
• Cruise operators
• Insurance
companies
GDS service
providers
Land operators for
Non-Japan Tours
Booking of air tickets
and hotels
Provision of local
touring services
Direct liaison by EGL
for Japan Tours
(I) Package Tours:
Traditional package
tours and theme tours;
MICE tours and tailored
tours
(I) FIT products
(II) Ancillary travel related
products and services
Sales channels
• Branches
• Call centres
• Online sales
platform
• Individuals / retail
customers
• Corporate
customers
20.2%
18.5% 18.5% 18.5% 18.5%
11.6% 11.1% 11.1% 11.1% 11.1%
9.3%8.2% 8.2% 8.2% 8.2%
0%
5%
10%
15%
20%
25%
FY13A FY14A FY15E FY16E FY17E
Japan Asia ex-Japan Europe and others
EGL achieved 8.3 ppt higher in
gross margin for Japan tours than
Non-Japan tours in FY14
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 12 of 53
Exhibit 10: EGL operation processes for package tours and FIT products
Source: Company, OP Research
Besides, EGL has centralized procurement of travel components such as air
tickets, hotel rooms, buses, and other supplies, at head office to negotiate for
competitive pricing through bulk demand. As one of the market leaders with direct
access to GDS and an ability to charter flights, EGL has economy of scale
advantage in securing flight seats during the peak seasons or to develop tours
with new destinations, which smaller travel agents, lacking capital, cannot
replicate. As EGL directly procures hotel rooms and bus transportation with local
operators in Japan, they set up long-term relations with suppliers by upfront
payments and continuous demand for tour bus and hotel rentals throughout the
year, giving them leverage over competitors in securing adequate supply to
capture market shares even in the peak seasons.
As mentioned earlier, EGL has direct land operations in Japan to give better
travel experience to customers to gain No.1 market share for Japan tours in Hong
Kong and Macau. Besides, direct land operations also allow for more flexibility in
tour planning and development for diversified products and services. Without the
need to source pre-determined tours from local operators, EGL is able to
structure tours with new theme or new destinations. For example, they have
launched Japan wedding tours with services for venue booking and photography
in 2011 and chartered “seven-star” luxury cruise train tours to Kyushu (九州)
in 2013. Given economy of scale, EGL also developed new destinations by
charter flights to Totori (鳥取) and Nagasaki (長崎) in 2013, which competitors
cannot replicate without direct land operations. Thus, EGL secured 32.5%, 29.6%
and 31.6% market shares for Japan-bound package tour market in Hong Kong in
2011, 2012 and 2013 respectively.
Moreover, EGL has a much wider spectrum of FIT products by directly
co-operating with other local operators in Japan, such as car rental services,
railways and theme parks. Through EGL, customers can have one-stop solution
in Hong Kong to book car rental services for self-drive travel in Japan, to buy
railway and bus passes as well as admission tickets to theme parks. Thus, EGL
has also been the top travel company in the Japan-bound FIT market in Hong
Kong with 16.2%, 15.2% and 14.3% market shares in 2011, 2012 and 2013
respectively.
Given its expertise in land operations in Japan, Japan-bound products
contributed 49% of total number of customers in FY14, while Asia ex-Japan and
Europe and others only contributed 45% and 6% respectively.
Time
Market research
and
Product designProcurement
Sales and
Marketing
Conformation and
Pre-tour
arrangement
Tour operation Evaluation
3 to 4 months for existing destinations;
6 to 9 months for new destinations
1 to 2 months 1 to 2 weeks 1 to 14 days
for EGL tours
Process
EGL has strong edge in securing
air tickets, hotel rooms and local
buses even in peak seasons
Direct land operations in Japan
allow high degree of flexibility in
tour design to gain better
customer travel experience
Direct land operations in Japan
also create full range FIT products
portfolio
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 13 of 53
Exhibit 11: Competitive advantages for direct land operations
Competitive advantage Benefits Barriers
Cost control Without outsourcing to third party local operators, EGL
can achieve better gross margin in Japan-bound tours
through centralised procurements and direct travel
elements selection.
(GPM: 18.5% for Japan tours VS 10.2% for Non-Japan
tours in FY14 )
Management needs strong knowledge and practical
experience to set up direct relations with local operators
of hotels and buses in Japan
EGL management has over 30 years experience and
they studied or worked in Japan before founding EGL
Quality control Direct land operations allow EGL tour escorts to handle
tour guide activities with full control of the customer
services during the tour.
It ensures the service quality leaves a pleasant impression
of their travel products
Heavy investment on staff training is needed before they
are capable of handling tour guide duty in Japan.
EGL provides standardised and comprehensive training
and guidelines to the staff
As experienced tour guides, EGL executive directors
often directly communicate with the staff to keep them
focused on service quality
Relationship with suppliers By setting up direct and long term relationships with the
suppliers of hotel rooms and buses in Japan, EGL has
strong capabilities in procurement of travel elements,
especially during peak seasons, since EGL can use
up-front payments to secure long term and stable supply.
Due to Japanese culture, local companies are reluctant to
set up business relationships with new companies,
especially for foreigners.
Chairman of EGL has number of awards in travel industry
from local governments in Japan, especially as EGL
helped the industry redevelopment with donations after
the tsunami in Mar 2011.
Flexibility in product design
and development
Without the need to source pre-determined tours from
local operators, EGL can design and develop tours with
new destinations or new themes through direct land
operations
With more tour options for customers, EGL secured the
top place with 31.6% market share in Japan tours in FY14
Early development of direct land operations is needed to
create a critical mass to make new products development
to become profitable.
EGL has leveraged on their leading position which
smaller competitors cannot easily replicate
Wider products range in FIT
products
EGL can include railway transportation passes, theme
park admission tickets and car rental services into their
FIT products to give a one-stop solution to customers to
gain unique value with 14.3% market shares in
competitive FIT products market.
Economy of scale cannot be achieved by direct
operations in Japan for FIT products. Competitors without
package tours cannot be as efficient as EGL in direct
procurement of FIT products.
Source: Company, OP Research
Exhibit 12: Total number of customers of package tours and FIT products
by destinations in FY14
Source: Company, OP Research
Japan49%
Asia ex-Japan45%
Europe and others6%
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 14 of 53
Apart from higher margin yield and enhancing service quality from direct land
operations, EGL also has a strong competitive edge throughout the whole
operation process. Because of in-depth knowledge of Japan and tour operations,
EGL executive directors will also escort tours and conduct site visits to new and
existing tour destinations from time to time to seek new tour destinations, new
attractions and travel elements, such as new hotels to include in package tours or
FIT products. By considering market trends, customers’ feedback and availability
of flights, land operators and hotels, EGL aims to introduce new package tours
every few months with new destinations, new themes of local festivities or new
activities.
EGL has strong physical sales presence with seven branches in Hong Kong and
one in Macau. Sales representatives in the branches can provide visual
merchandise tour marketing brochures and promote the latest special offers. By
centralizing its booking system, tour availability enquiries, tour selections and tour
reservations, bookings can be efficiently made in these branches to facilitate the
sales process. With relatively high rental expenses for expanding the number of
outlets, EGL has developed cost effective sales channels of call centers and
online platform. Customers can make enquiries and bookings through sales
representatives on the hotlines, which is almost the same as the way it is done in
the branches.
Given the faster pace of life and higher mobile network adaptation, EGL has a
website (www.egltours.com) to work as a sales and marketing platform for online
payment as well as product promotions and information around the clock without
limitation of branch opening and closing hours. Purchase through online platform
increased at a CAGR of 15.1% from 2009 to 2012, which was higher than
traditional channel like online travel platforms in China, such as Ctrip.com and
Tiniu.com.
Exhibit 13: Revenue by sales channel in FY13
Source: Ipsos Report, OP Research
Note: Others include direct sale of MICE products to corporate customers, sale of FIT products to other travel agents, and commission rebate from suppliers.
Branches64.3%
Call centres and online sales
platform26.2%
Others9.5%
EGL management has dedicated
involvement in product
development
EGL has sales channels of eight
branches, call centers and online
platform
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 15 of 53
Product segments
EGL principally engaged in the design, development and sale of a wide array of
package tours (such as traditional outbound tours, theme tours and MICE tours),
FIT products (such as flight-only booking, hotel-only booking and flight-plus-hotel
packages) for worldwide destinations and ancillary travel-related products and
services (such as car rental services in Japan for self-driving travel, theme park
tickets and travel insurance) to cater for the diverse interests and requirements of
the customers. Package tours, FIT products and ancillary travel-related products
and services contributed 90.5%, 4.5% and 5.0% of the total revenue in FY14
respectively.
Exhibit 14: Revenue by segments
Source: Company, OP Research
As EGL arranged and purchased all the travel elements directly from the
suppliers for Japan Tours, EGL has higher overall margin of 14.7% in package
tours than peers in FY14. Besides, since revenue from FIT products and ancillary
travel related services are recognised on net basis as EGL does not retain
significant risks and reward in the transaction, FIT products and ancillary produts
and services have 100% and 48% gross margin in FY14 respectively.
1,499 1,525 1,734
1,923 2,136
76 75
88
99
110
73 85
93
102
111
0%
5%
10%
15%
20%
25%
0
500
1,000
1,500
2,000
2,500
FY13A FY14A FY15E FY16E FY17E
Ancillary travel related products and services FIT products Package tours YoY (%)
1,647 1,685
1,916
2,123
2,358
(HK$mn)
Package tours, FIT products and
ancillary travel-related products
and services are three main
business segments
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 16 of 53
Exhibit 15: Gross margin by segments
Source: Company, OP Research
By eliminating the accounting recognition difference across the segments,
package tours, FIT products and ancillary travel-related products and services
contributed 65.9%, 22.1% and 12.0% of the total gross profit in FY14 respectively.
Exhibit 16: Gross profit by segments
Source: Company, OP Research
EGL served around 350,000 customers in FY13 and FY14, with 55% and 45% of
them purchasing package tours and FIT products. Although there is only a slight
difference in the number of customers between package tours and FIT products,
package tours can achieve higher gross profit per person due to full range
services and higher involvement in inventory and administration. We think EGL
has created a strong synergy effect from two products to cater to different
customer needs and have a better economy of scale from sizeable traffic volume.
21.4% 20.2% 20.5% 20.7% 20.9%
16.1% 14.7% 15.0% 15.2% 15.4%
100.0% 100.0% 100.0% 100.0% 100.0%
50.7% 48.0% 47.8% 47.5% 47.3%
0%
20%
40%
60%
80%
100%
120%
FY13A FY14A FY15E FY16E FY17E
Total Package tours FIT products Ancillary travel related products and services
241 225 260
292 329
76 75
88
99
110
37 41
44
48
53
-10%
0%
10%
20%
30%
40%
50%
60%
0
100
200
300
400
500
600
FY13A FY14A FY15E FY16E FY17E
Ancillary travel related products and services FIT products Package tours YoY (%)
353341
393
439
492
(HK$mn)
Gross profit has a clearer picture
about segment contribution due
to accounting recognition
Synergy and economy of scale
created by sizable volume in
package tours and FIT products
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 17 of 53
Exhibit 17: Number of customers by segments
Source: Company, OP Research
Package tours – Over 50% revenue in Japan tours
EGL mainly operates outbound package tours with bundled travel elements of
flights, hotels, meals and transfers. Package tour groups are generally
accompanied by tour escorts during the tour to cater for customer services, such
as language differences, safety issues and sightseeing activities. Within the more
than 7,000 annual package tours to over 60 countries by EGL, Japan, South
Korea, Taiwan, Malaysia and Singapore and China are the five most popular
regions by revenue. EGL expertise focuses on Japan Tours which contributed
44%, 55% and 55% of the total package tours revenue in FY12, FY13 and FY14
respectively.
Exhibit 18: Destinations of EGL outbound tours
Source: Company, OP Research
191,410
190,263
215,790
237,824
262,646
163,024 155,483
177,533
196,382
217,669
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
0
40,000
80,000
120,000
160,000
200,000
240,000
280,000
FY13A FY14A FY15E FY16E FY17E
Package tours FIT products No. of customers YoY (%)
Japan is the most popular
destination for EGL which
contributed 55% of package tour
revenue with relatively higher
gross margin in FY14
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 18 of 53
Exhibit 19: Package tours revenue by destinations
Source: Company, OP Research
FIT products and packages – one-stop travel solutions service provider
To cater to the needs of flexibility, independence and freedom of non-escorted
travel, EGL developed FIT products and packages, such as flight-only booking,
hotel-only booking and flight-plus-hotel bundled packages on their brand image,
experience and well-established relationship with suppliers. Because of direct
operation experience and well-established relationship with hotels in Japan, EGL
is able to provide more accommodation options from quality hotels at more
competitive prices than other competitors in the market, where over 50% of FIT
products are bound for Japan.
Exhibit 20: FIT products revenue by destinations
Source: Company, OP Research
823 839
1,017
1,170
1,345
493 465 474 498 523
183 221 243 255 268
0%
20%
40%
0
400
800
1,200
1,600
FY13A FY14A FY15E FY16E FY17E
Japan Asia ex-Japan Europe and others Package tours YoY (%)
(HK$mn)
49 48
60
69
79
25 25 25 26 28
2 3 3 3 4
-20%
0%
20%
40%
0
20
40
60
80
100
FY13A FY14A FY15E FY16E FY17E
Japan Asia ex-Japan Europe and others FIT products (%)
(HK$mn)
EGL leveraged on their network
strength in Japan for FIT products
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 19 of 53
Ancillary travel related products and services – custom made travel
insurance
Ancillary travel related products and services include transport arrangement
services, bookings of train, tour bus, airport express, car rental services in Japan
through arrangement with a car rental service provider, sale of theme park
admission tickets, travel insurance services, retail of souvenirs, gifts and snacks
and travel visa application services. EGL provides comprehensive travel related
products and services with the aim of providing convenience to customers and
promoting enrolment for their tours or purchasing FIT products.
Exhibit 21: Ancilliary travel-related products and services revenue
Source: Company, OP Research
To ensure carefree travel experience, EGL tailor-made an insurance programme
called “EGL Global Supreme Travel Insurance (EGL 至尊全球旅遊保險)”,
which was underwritten by an international insurance company and received
commission from it. The insurance programme offers a better coverage than
homogeneous travel insurance products in the market, especially for trip
cancellation or curtailment compensations. The insurance programme provides
benefits including coverage for personal accident of up to HK$1 million, medical
expenses of up to HK$1 million, personal liability of up to HK$2.5 million, trip
cancellation or curtailment of up to HK$30,000, and benefits for loss of travel
document and personal baggage of up to HK$15,000.
44
55
61
67
73
29 30 32
35 38
0%
20%
40%
0
20
40
60
80
FY13A FY14A FY15E FY16E FY17E
Products Services Ancillary travel related products and services YoY (%)
(HK$mn)
EGL co-operates with
international insurance company
to underwrite their custom-made
travel insurance programme
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 20 of 53
Exhibit 22: EGL Global Supreme Travel Insurance
Source: Company, OP Research
Expanding successful model from Japan into other regions
With the success of the direct land operations in Japan, EGL made two
investment plans in local land operators in Japan and Korea in FY14 to expand
the network coverage. EGL holds 38% interest in Kabushiki Kaisha EGL
OKINAWA, which was established on Okinawa Island in February 2015 to
engage in serving package tours for destinations on Okinawa Island. EGL will
also establish a 38% owned travel agency JV in South Korea to engage in
serving package tours for destinations in Korea.
As the investments in these two JVs are expected to officially put into operation in
2Q15E, it will enable EGL to effectively improve service quality control and take
dominant role on cost monitoring to increase profit margin. In the long run, we
believe EGL will increase its stake in the JVs to a controlling level after ramping
up the business scale in the future.
Besides, we think EGL will also consider further expansion of the travel tour
ground handling operation by setting up JVs in other popular destinations, such
as Taiwan, in near future. By replicating the successful model, we believe EGL
will be able to deliver sustainable growth even in relative mature markets in Hong
Kong and Macau.
Local land operator JV has been
set up in Okinawa and will be set
up in South Korea to improve cost
control and profit margin
EGL is expected to increase stake
in the JVs after ramping in the
future
More local land operator JVs are
expected to be setup in other
destinations to replicate
successful business model in
Japan
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 21 of 53
Strong outlook for FY15E results
The Zen to “Go with the flow”
EGL historical results show high correlation with the currency depreciation,
especially for Japanese Yen (“JPY”). In addition to the package tour expenses,
people usually include merchandise and souvenir purchases into total travel
budget. With lower foreign exchange rate, it will increase the travellers’ real
spending power and affect their choice of destinations.
In FY13, EGL recorded a 49% jump in number of customers for their
Japan-bound package tours and FIT products, driven by JPY depreciation of
17.6%. Besides, since 20% - 30% of EGL costs of sales are denominated in JPY,
which include hotel accommodations, expenses in local operations,
transportation and meals as well as admission ticket costs, the JPY depreciation
also led to reduction in costs and improvement in profit margin. Thus, EGL gross
profit margin and net profit margin increased by 4.7 ppt and 3.2 ppt to 21.4% and
6.2% in FY13.
Exhibit 23: Japanese Yen depreciation triggers Japan travel
Source: Bloomberg, OP Research
Slowdown in FY14 did not reflect strong growth in FY15E
Although EGL recorded 27.5% decline in net profit to HK$74.5mn in FY14, it was
mainly driven by (1) recent geopolitical tensions (2) consumption tax rate hike in
Japan (3) competition among airlines and (4) one-off listing expenses.
2014 was a difficult year for the travel industry with a number of unfortunate
events occurring. A Malaysia Airlines aircraft went missing in March 2014 while
another of its planes was shot down near Ukraine in July 2014. Together with the
geopolitical tensions and social unrests triggered by government takeover in
Thailand and the ISIS advances in the Middle East, consumer sentiment for Asia
ex-Japan travel was significantly weakened in 2014. However, we believe this
short-term effect will ease off and people will choose destinations within relatively
safe areas for travel, such as Japan and Korea, where EGL strength lie.
60
70
80
90
100
110
120
130
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Weakening foreign exchange will
drive the increase of real
spending power and number of
travellers
EGL business has high
correlation with currency
depreciation, especially for Yen
Profit decline in FY14 is
temporary and FY15E results will
be robust
Tragedies of 2014 will make
relatively safe areas, such as
Japan and Korea, destinations of
choice
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 22 of 53
Exhibit 24: Number of customers for Asia ex-Japan travel
Source: Company, OP Research
Negative impacts from consumption tax rate hike in Japan will ease off
Based on the high base of growth in FY13, the number of customers of
Japan-bound travel of EGL dropped 3% in FY14. The slowdown was partly driven
by the increase in the consumption tax rate of Japan from 5% to 8% in April 2014.
Although the costs of certain travel elements in Japan, such as hotel
accommodation, meals and transportation, increased on higher consumption tax
rate, EGL did not raise the price level of the tour products to maintain
competitiveness during the summer holiday season in FY14. Thus, the gross
margin of Japan-bound package tours dropped by 1.7 ppt to 18.5% in FY14.
Despite JPY depreciating 12.1% in FY14, JPY mainly went down from September
2014. As customers usually plan their trips a few months in advance, we believe
the strong demand for Japan tours will be factored in the FY15E results. Besides,
under higher demand, EGL can pass on the increased costs from consumption
tax to customers more easily to maintain a stable margin going forward.
Exhibit 25: EGL number of customers for Japan travel
Source: Company, OP Research
92,712 87,404 89,152
93,610 98,290
69,027 68,323
69,689 73,174
76,833
-12%
-8%
-4%
0%
4%
8%
0
30,000
60,000
90,000
120,000
FY13A FY14A FY15E FY16E FY17E
Package tours FIT products Asia ex-Japan travel YoY (%)
87,228 89,954
112,443
129,309
148,705
87,843
79,781
99,726
114,685
131,888
-10%
0%
10%
20%
30%
40%
50%
60%
0
40,000
80,000
120,000
160,000
FY13A FY14A FY15E FY16E FY17E
Package tours FIT products Japan travel YoY (%)
Hike in consumption tax rate in
Japan hit consumer demand and
gross margin in FY14, but strong
growth in FY15E will be driven by
JPY depreciation and passing
through costs to customers
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 23 of 53
Strong growth in number of visitors to Japan in 1Q15
As JPY dropped 12% in 4Q14, the weak level of 120 JPY to 1 USD has been
creating a strong demand in Japan tours in 2015. Moreover, with amusement
theme parks, such as Harry Porter section in Universal Studio Osaka, have been
opened in 2014, it is expected to see more tourists picking Japan as their
destination in 2015.
According to Japan National Tourism Organization (“JNTO”), the total number of
visitors to Japan surged 29.4% and 43.7% to 13.41 million and 4.13 million in
2014 and 1Q15 respectively due to lower foreign exchange rate and boom of
outbound travel in China. Noticeably, the number of visitors from China and Hong
Kong leads other regions and record 93.2% yoy and 63.0% yoy growth
respectively. We believe EGL will have a strong FY15E results given their strong
edge in Japan-bound travel products and expanding network in China in 2H15.
Exhibit 26: Total number of visitors to Japan
Source: JNTO, OP Research
Exhibit 27: Number of visitors to Japan from Hong Kong
Source: JNTO, OP Research
-0.5%
17.8%
9.6% 9.0%13.8%
0.0%
-18.7%
26.8%
-27.8%
34.4%
24.0%29.4%
43.7%
-40%
-20%
0%
20%
40%
60%
0
4,000,000
8,000,000
12,000,000
16,000,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1Q15
Total YoY
-10.5%
15.4%
-0.5%
17.9%22.6%
27.3%
-18.3%
13.2%
-28.3%
32.0%
54.9%
24.1%
63.0%
-40%
-20%
0%
20%
40%
60%
80%
0
200,000
400,000
600,000
800,000
1,000,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1Q15
Hong Kong YoY
Japan recorded a strong growth
of 44% yoy in number of visitors
in 1Q15 (+63% yoy from Hong
Kong and +93% yoy from China)
EGL will ride the tide for Japan
travel from Hong Kong and China
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 24 of 53
Exhibit 28: Number of visitors to Japan
Country/Area Mar, 2014 Mar, 2015 (%) Jan-Mar, 2014 Jan-Mar, 2015 (%)
South Korea 192,078 268,200 39.6 679,097 947,900 39.6
China 184,064 338,200 83.7 477,905 923,500 93.2
Taiwan 208,610 277,900 33.2 596,768 772,500 29.4
Hong Kong 64,482 117,200 81.8 192,794 314,300 63.0
Thailand 71,122 92,400 29.9 132,617 181,200 36.6
Singapore 16,378 23,100 41.0 37,636 51,200 36.0
Malaysia 23,372 28,200 20.7 51,442 59,800 16.2
Indonesia 14,302 19,500 36.3 27,958 37,300 33.4
Philippines 12,709 26,800 110.9 29,364 55,400 88.7
Vietnam 11,145 18,700 67.8 25,271 40,500 60.3
Inida 6,892 8,200 19.0 18,761 22,000 17.3
Australia 21,334 29,200 36.9 85,290 108,100 26.7
U.S.A. 80,929 95,600 18.1 192,712 216,900 12.6
Canada 16,079 21,600 34.3 40,351 52,200 29.4
United Kingdom 20,029 25,200 25.8 48,836 58,000 18.8
France 15,788 18,100 14.6 33,802 40,100 18.6
Germany 13,752 18,400 33.8 30,071 36,500 21.4
Italy 6,541 8,900 36.1 13,621 17,800 30.7
Russia 6,426 5,500 -14.4 14,134 12,300 -13.0
Spain 3,636 6,300 73.3 7,752 11,600 49.6
Other 60,891 78,800 29.4 138,406 172,300 24.5
Grand total 1,050,559 1,526,000 45.3 2,874,588 4,131,400 43.7
Source: JNTO, OP Research
Airlines direct sales is simply for promotion
Although there was a 15% increase in number of customers for Europe and other
travel destinations, EGL recorded 1.1 ppt decline in gross margin in spite of a
price promotion for long-haul package tours to Australia in FY14. This coincided
with the startup of several economy airlines which resorted to very low price tags
to attract customers via direct distribution channel for air tickets. We believe these
were short term marketing campaigns to ramp up their loading factors while EGL
has full range and comprehensive package tours to cater for mid-high end
customers’ core demands in long run.
Exhibit 29: Number of customers for Europe and others travel
Source: Company, OP Research
11,470
12,905
14,196 14,905
15,651
6,154 7,379
8,117 8,523 8,949
-40%
-30%
-20%
-10%
0%
10%
20%
0
4,000
8,000
12,000
16,000
20,000
FY13A FY14A FY15E FY16E FY17E
Package tours FIT products Europe and other travel YoY (%)
Low priced air tickets are short
term marketing campaigns for the
startup of economy airlines
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 25 of 53
Enjoy high CAGR with EGL
After EGL successfully listed in HKEx in November 2014, it incurred listing
expenses of HK$16.8 million in FY14. Besides, due to JPY depreciations, there
were HK$3.5mn exchange losses, which together saw profit decline 27.5% to
HK$74.5mn. As EGL has adopted a new procedure of foreign exchange
management since August 2014, we expect the reduced currency exposure and
absence of one-off expenses will drive EGL net profit up 63% to HK$122mn in
FY15E. With stable growth in China market and operating leverage, we believe
EGL will achieve a CAGR of 32% to have net profit of HK$172mn in FY17E.
Exhibit 30: EGL is expected to have net profit CAGR of 32%
Source: Company, OP Research
103
75
122
145
172
0%
2%
4%
6%
8%
0
50
100
150
200
FY13A FY14A FY15E FY16E FY17E
Net Profit Net margin
(HK$mn)
EGL is expected to see 63% net
profit growth in FY15E and a
3-year CAGR of 32%
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 26 of 53
Making a quantum leap in China market
Twin engines taking off China market expansion
EGL plans to expand into the China market by engaging with local travel
agencies to promote and sell their products, especially for Japan tours. Since
EGL has direct land operations in Japan, it allows them to design different
itineraries to cater to different demands from Chinese customers. Besides, EGL
can also develop Japan-bound package tours with Mandarin-speaking tour
escorts, which depart from Hong Kong or China, to increase their product
attractiveness.
According to China National Tourism Administration (“CNTA”), the China travel
agency market is very fragmented and there were 2,151 and 251 travel agents
providing outbound travel products and services in China and Guangdong
Province in 2013 respectively. As many smaller local travel agencies do not have
their own outbound travel products, it creates a strong incentive for them to
distribute EGL travel products. Thus, EGL can leverage on their powerful brand
and well-established platform to capture the massive travel market in China
through this win-win co-operation.
EGL has received questionnaire replies from six travel companies in Shenzhen,
Zhongshan and Zhuhai about the views on tour destinations in Japan and the
forecast sales of the tour products. It is expected the cooperation will commence
and start to contribute in 2H15.
Luck is what happens when preparation meets opportunity - Seneca
On 18 December 2014, a new agreement was signed under CEPA to adopt a
brand new approach for further liberalization of service industry between the
Mainland and Hong Kong. The Mainland has opened up 153 services trade
sub-sectors in Guangdong to Hong Kong services industry, accounting for 95.6%
of all services trade sub-sectors. Under a total of 27 new liberalization measures
and investment facilitation, tourism and travel related services is one of the
sectors to benefit from liberalization. The Agreement came into effect on the day
of signing and implemented from 1 March 2015, opening up an explosive growth
opportunity for EGL to develop China market by leveraging their strong business
model and operations in Hong Kong.
Under CEPA, 5 travel agents are allowed to set up wholly-owned companies to
run outbound group tours for Mainland residents to destinations beyond Hong
Kong and Macau (excluding Taiwan). We expect EGL will set up subsidiary in
China and try to get the outbound travel agency licence in near future to directly
sell their award-winning products to Mainland customers. As EGL will launch their
mobile platform to sell their package tours and FIT products in 4Q15, we expect
they can ramp up China business at an explosive speed without heavy
investment on opening branches once the qualification is granted under CEPA.
Thus, we expect the China market to contribute 30% of EGL’s revenue in 3 years
under the twin engines of growth in China market.
EGL plans to capture the travel
services market in China by
cooperating with local travel
agencies in Guangdong Province
for distribution of their Japan
tours travel products
The cooperation is expected to
commerce in 2H15
“The Agreement between the
Mainland and Hong Kong on
Achieving Basic Liberalization of
Trade in Services in Guangdong”
was signed on 18 Dec, 2014
5 wholly-owned travel agents are
allowed to setup in China by
HKSS to operate outbound group
tours for Mainland residents
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 27 of 53
Exhibit 31: Liberalization for travel services industry under CEPA Agreements
Sub-sector Reserved restrictive measures for Commercial Presence
Hotels and restaurants Apply national treatment
Travel agencies and tour operators services The number of travel agents set up on a wholly-owned basis operating outbound group tours for
Mainland residents on a pilot basis to destinations beyond Hong Kong and Macau (excluding Taiwan)
is restricted to 5.
No restriction is imposed with regard to the number of Mainland-Hong Kong joint venture travel
agents operating outbound group tours for Mainland residents to destinations beyond Hong Kong and
Macao (excluding Taiwan).
Tourist guides services Apply national treatment
Other Apply national treatment
Source: Trade and Industry Department of HKSAR, OP Research
Exhibit 32: New CEPA Agreement singed on December 2014
Source: Financial Secretary Office of HKSAR, OP Research
Booming Chinese outbound travel
According to JNTO, China replaced Taiwan as the second largest source of
visitors in 2014 after anti-Japan emotions eased during 2013. The number for
visitors from China to Japan increased sharply by 83% yoy and 93% yoy in 2014
and 1Q15 respectively. We believe Japan is one of the favorite destinations of
Chinese tourists due to (1) geographic proximity (2) abundant shopping options
(3) restaurants providing high quality foods and drinks and (4) refined culture and
attractive sightseeing spots. We believe travel agencies, such as EGL, with
expertise in Japan tours have a strong competitive edge in capturing this Chinese
outbound travel boom.
Number of visitors from China to
Japan increased 83% yoy and
93% yoy in 2014 and 1Q15
respectively
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 28 of 53
Exhibit 33: Number of visitors to Japan from China
Source: JNTO, OP Research
Exhibit 34: Rocketing number of Chinese tourists in Japan
Source: Internet
According to China National Tourism Administration (“CNTA”), the total number of
Chinese outbound tourists increased at a CAGR of 19.6% from 57.4 million in
2011 to 98.2 million in 2013. It is expected to further grow by 17% yoy in 2014E
due to higher disposable income and heightened desire for leisure. The Individual
Visit Scheme begun in 2003 allowed Mainland China residents to visit Hong Kong
and Macau on an individual basis without business visa. This led to an explosive
growth in the number of Chinese outbound tourists to Hong Kong and Macau,
hitting 40.3 million and 25.2 million or 41% and 25.7% of total in FY13
respectively.
-0.8%
37.3%
6.0%
24.3%
16.1%
6.2%0.6%
40.4%
-26.2%
36.6%
-7.8%
83.3%
93.2%
-40%
-20%
0%
20%
40%
60%
80%
100%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1Q15
China YoY
Chinese outbound tourists are
changing their destinations from
Hong Kong and Macau to places
such as Japan, Korea and Taiwan
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 29 of 53
Because of (1) higher disposable income and (2) relaxation of visa requirements,
we expect more Chinese tourists will switch destinations from Hong Kong and
Macau to other countries, such as Japan, Korea, Thailand and Taiwan. On the
rise of middle class in China, it is expected they will increase their travel spending
from low-mid end tours in Hong Kong and Macau to mid-high end tours in Japan,
Korea and Thailand as proven by the 38.9% CAGR and 16.2% CAGR of total
spending of Chinese tourists and average spending per Chinese tourist during
2010 – 2013. Besides, 52 countries, such as Japan, Korea, Thailand and
Indonesia have simplified and relaxed visa requirements for Chinese tourists in
early 2015, benefiting travel agencies with expertise in package tours covering
Asia ex-Hong Kong and Macau regions, like EGL.
Exhibit 35: Number of Chinese outbound tourists
Source: CNTA, OP Research
Exhibit 36: Chinese outbound tourist destinations in FY13
Source: CNTA, OP Research
28.9 31.0 37.5 41.0
44.8 47.7
57.4
70.2
83.2
98.2
115.0 43%
8%
21%
9% 9%6%
20%22%
18% 18% 17%
0%
20%
40%
60%
0
30
60
90
120
150
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Number of Chinese outbound tourist yoy
(mn)
Hong Kong41.0%
Macau25.7%
Korea4.3%
Thailand4.1%
Taiwan3.0%
USA2.0%
Japan1.9%
Vietnam1.8%
Cambodia1.7%
Malaysia1.4%
Singapore1.3%
Russia0.9%
Australia0.8%
Canada0.5%
UK0.5%
Italy0.5%
France0.4%
Germany0.4%
Others7.6%
Higher disposal income and
relaxation of visa requirements
are the major drivers for Chinese
outbound travel
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 30 of 53
Exhibit 37: Number of Chinese outbound tourist by destinations in FY13
Destination Number of Chinese tourists (mn) 2010 - 2013 CAGR
Hong Kong 40.3 20.40%
Macau 25.2 16.10%
Korea 4.3 29.30%
Thailand 4 58.10%
Taiwan 2.9 20.70%
USA 2 22.20%
Japan 1.8 -2.30%
Vietnam 1.8 13.50%
Cambodia 1.7 66.40%
Malaysia 1.4 9.30%
Singapore 1.3 17.00%
Others 11.5 n.a.
Total 98.2 19.6%
Source: CNTA, OP Research
Note: Number of Chinese tourists to Japan recorded -2.3% CAGR due to anti-Japan emotion in China in 2013. It has increased 83% and 93% yoy growth in 2014 and 1Q15.
Exhibit 38: Total spending by Chinese tourists
Source: CNTA, OP Research
20,000 21,80028,240 31,478
36,20042000
48,000
72,600
102,000
128,700
155,000
32%
9%
30%
11%15% 16%
14%
51%
40%
26%
20%
0%
20%
40%
60%
0
40,000
80,000
120,000
160,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Total spending yoy
(US$ mn)
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 31 of 53
Exhibit 39: Average spending per Chinese tourist
Source: CNTA, OP Research
The majority of Chinese outbound tourists are coming from first tier cities due to
higher disposal income. Beijing, Shanghai and Guangdong province recorded
over 15% contribution to the total number of outbound travelers which, we believe,
puts EGL on the right track by setting up distribution network in Guangdong
province with engagement of local travel agencies as subsidiary under CEPA.
Exhibit 40: Chinese outbound tourist by provinces
Source: WTOF, Ipsos, OP Research
693 703 753 769
807 881
836
1,033
1,226 1,311 1,348
-8%
1%
7%
2%5%
9%
-5%
24%
19%
7%
3%
-20%
0%
20%
40%
0
400
800
1,200
1,600
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Average spending (US$) yoy
(US$)
>15%
5%-10%
3%-5%
1%-3%
<1%
EGL can capture one of the major
regions of Chinese outbound
tourists by setting up network in
Guangdong province
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 32 of 53
Value play in a hot sector. Initiate BUY
A Tale of Two Cities - The superlative degree of comparison
On the bullish sentiment for the robust growth in Chinese outbound travel market
and support from favorable policy, travel agencies are trading at a high valuation
of 27x – 127x forward PE in A-shares market. Meanwhile, on the rise of internet
travel platform, few travel-related Chinese companies, except Ctrip.com, are
listed in NASDAQ without earnings due to expenses in capturing market shares.
Given the high growth and leading position of Ctrip.com, which is trading at 83x
forward PE, indicative of a huge valuation gap with EGL.
Given its asset-light business model and the strong growth looming over FY15E,
we believe EGL is only trading at 8.0x FY15E PE or 86% discount to peers
average. As EGL plans to pay out at least 50% of profit as annual dividends in the
future, we believe the stock currently has 6.3% yields, giving a very high margin
of safety to invest.
Exhibit 41: Peers forward PE comparsion
Source: Bloomberg, OP Research
Exhibit 42: Peers comparsion
Company Stock code Online platform Outbound package tour Physical outlet Land operation
Ctrip.com CTRP US Comprehensive No No No
Tuniu.com TOUR US Comprehensive In China No No
Beijing Utour 002707 CH Yes In China 36 branches mainly in Beijing No
Travel Expert 1235 HK No Small scale in HK, mainly FIT 57 branches in HK No
Wing On Travel Privatized No In HK and small scale in China 24 branches in HK, Macau,
Guangdong and Singapore
No
EGL 6882 HK Yes In HK and launch in China in 2H15 8 branches in HK and Macau In Japan
Source: OP Research
74.5
53.8
17.3
8.0
0
10
20
30
40
50
60
70
80
A-shares listed US listed HK listed EGL
A-shares listed US listed HK listed EGL
(x)
EGL has a large valuation gap and
deep discount to A-shares and
NASDAQ listed peers
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 33 of 53
Strong balance sheet for future growth after IPO
EGL raised HK$115.8 mn from the IPO on 28 November 2014 by selling 125 mn
shares (100 mn new shares and 25 mn sale shares) at listing price of HK$1.39
per share. The company will use the proceeds to (1) enhance sales channels (2)
promote brand image through marketing initiatives (3) strengthen operational
infrastructure for sustainable growth (4) develop overseas wedding tours and (5)
general working capital.
By refurbishing the branches, EGL will enhance its physical presence and brand
image. Besides, EGL will invest in IT system to further develop its online and
mobile sales platform to provide an all-round sales channel. We believe the
integrated online booking system with real-time confirmation and online payment
options will not only smoothen operations in Hong Kong but also equip EGL with
the capability to expand its China market operations in an economic way similar
to Ctrip.com and Tuniu.com.
Besides, with solid balance sheet in hand, EGL can increase the use of charter
flights to improve flexibility and secure essential flight seats in peak seasons or to
new and less common destinations.
As mentioned earlier, based on listed stance and improved corporate image, we
believe EGL can further expand their business by forming more JVs with other
local ground tour handling operators as well as providing more options in
recruiting more talents in the travel industry.
EGL will also use part of the proceeds to develop products in the fast growing
trend of signature tours and overseas wedding tours, such as high-end gourmet
tours hosted by Mr. Huen and EGL brand spokespersons.
Exhibit 43: Use of IPO proceeds
HK$ % USE of PROCEEDS
40.1 mn 35% Enhance sales channels
HK$22.9 mn or 20% for refurbishment and facelifting of the existing branches
HK$17.2 mn or 15% for development of a comprehensive online web portal equipped with an integrated
online booking system (hardware and project development cost)
28.6 mn 25% Promote brand image and recognition through marketing initiatives
HK$9.2 mn or 8% for conducting marketing initiatives with a focus on conventional media channels,
including television, magazines and internet advertisements
HK$8.0 mn or 7% for featured products or signature tours marketing campaigns with suitable
spokespersons, such as high-end gourmet tours
HK$11.4 mn or 10% for launching a reward and incentive scheme to enhance customer loyalty under
membership system
30.9 mn 27% Strengthen operational infrastructure to deliver sustainable growth
HK$13.8 mn or 12% for improving management information system by implementing an enterprise
resources planning system (3.2mn hardware 10.6mn project development cost)
HK$11.4 mn or 10% for arranging charter flights to destinations which are not served by scheduled
flights
HK$5.7 mn or 5% for attracting and recruiting experienced employees to join EGL ranks including
experienced and high-quality tour escorts, sales representatives and other talents in operation
management
5.7 mn 5% Develop overseas wedding tours
HK$4 mn for new specialised branches and website
HK$1.7mn for hiring additional staff
9.2 mn 8% Working capital and other general corporate purposes
Source: Company, OP Research
Proceeds raised in IPO will help
EGL for sustainable growth in the
future
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 34 of 53
Initiate BUY with 87% upside
We initiate our BUY rating for EGL with TP of HK$3.6 or 87% upside given the (1)
strong business model of direct land operations (2) strong growth in Japan tours
volume in FY15E (3) opportunities to capture the China travel market and (4) 86%
deep discount to peers average. We set our target PE at 15x FY15E PE,
representing 75% discount to peers given smaller operational scale, less stock
trading liquidity and initial stage of development in China market.
We believe EGL offers the best risk and reward ratio in travel industry in China
given (1) high operating leverage with asset-light model (2) strong edge to
capture outbound travel growth and (3) strong cash flow for high dividend yield.
We think the true value of EGL will be revealed once the company delivers strong
results in 1H15E to give a surprise to the market.
Our TP represents 87% upside
and 86% discount to peer average
Re-rating will be triggered after
1H15E results
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 35 of 53
Investment risks
Natural disasters, especially in Japan
Since Japan is EGL’s most popular destination for their travel products, their
business recorded significant decline in FY11 in wake of the Fukushima radiation
leak after the tsunami hit in March 2011. With continuous support to the travel
industry in Japan, such as HK$10 million donation in FY11, we believe EGL has
built up stronger relations with their local partners in Japan for better growth in the
future after recovery from natural disasters.
Foreign exchange rate risks, especially for Japanese Yen
In the past, EGL often carried more cash balance in foreign currencies,
particularly JPY, than was required to settle impending payables and accruals. As
a result, when JPY depreciated during 4Q12 to 2Q13, EGL recorded a net foreign
exchange loss of HK$9.4 million in FY1313, the bulk of which was attributable to
the translational loss arising out of the excessive cash balance held in JPY.
Effective from 1 August 2014, EGL has implemented foreign exchange risk
management procedures aiming to control foreign exchange risk. EGL will
minimize the foreign currency cash balance by estimating sales amount for the
coming one week in Japan Tours and the coming two weeks in Non-Japan Tours.
This procedure is expected to fully cover the foreign exchange exposure for travel
element costs denominated in foreign currencies in a limited period. Without
allowing exercise of any judgment over the future direction of foreign exchange
fluctuation, we believe the foreign exchange losses will be largely reduced in the
future.
Besides, EGL has a surplus cash in RMB amounting to HK$35.9 mn in 1H14.
Although RMB recorded slight depreciation in 2014, we believe it will bring EGL
higher interest income given a relatively stable exchange rate of RMB by setting a
limit of not more than 20% of aggregate surplus cash balance in foreign currency.
Competition from online platform and airlines direct sales
There is a growing change in consumer preferences and spending habits to
purchasing from online platforms and direct sales of air tickets from airlines. The
growth of the internet has led to an increase in price transparency and a
significant increase in the availability of travel products and services, and the
proliferation of online information and reviews about travel experiences and
destinations. Although the rise of low-cost carriers increases the range of
destinations at competitive prices, we believe EGL will maintain its competitive
advantage as they will launch online and mobile platforms in 2H15 and the ability
to capture the core demand of hassle-free travel for mid-high end customers with
their full-range services in package tours.
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 36 of 53
Increase in commercial real estate rental market
Due to asset-light model, EGL has a large portion of expenses related to rental
expenses in branches and headquarter office. Since a majority of their branches
and offices are rented from major shareholders, the rental rate is fixed for the next
3 years and any increase in the connected transactions limit for rentals would
need approval from minority shareholders.
Pricing policy
The travel industry is a fragmented market with over 1,400 companies in Hong
Kong. EGL has to adjust its tour prices to maintain price competitiveness, based
on travel cost elements and foreign currencies. EGL usually adds a margin of 3%
to the cost to cushion any unfavourable fluctuations in the exchange rate on a
weekly to bi-weekly basis.
Donations to charitable organisations and cities suffered from natural
disasters
For 2011, 2012 and 2013, EGL donated HK$10 mn, HK$400K and HK$680K
respectively to social services and charitable organisations, educational bodies,
and municipal organisations and community funds after the earthquake and
tsunami in Japan in March 2011. Any donation will increase the administrative
expenses for EGL and affect the net profit. By setting a maximum of 5% of the
profit for the prior year, the earnings impact should be minimized in the future.
On the other hand, donations can further enhance EGL corporate image and
bond their relationship with suppliers from the awareness of corporate social
responsibility.
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 37 of 53
Management background
In their 28 years of operation history, EGL management has been working as the
same team with the Executive Directors possessing over 30 years of experience
in the travel industry. Given its achievements for the travel industry in Hong Kong
and in other cities, Mr. Yuen, the Chairman, has been appointed as sightseeing
ambassador (觀光大使) of ten prefectures and cities in Japan and recognised as
the Capital Outstanding Leader of 2013 (資本傑出領袖 2013) by the “Capital”
magazine. Mr. Huen, the brand spokesperson, is the honorary advisor of the
Advisory Committee of Promoting Korea Tourism of Korea National Tourism
Organization Hong Kong Office.
Management profile
Mr. Yuen, Man Ying (袁文英), aged 63, is the founder of EGL and was appointed
as the Chairman and an Executive Director of EGL. He is responsible for major
decision-making, itinerary planning for tours to Japan, promoting the Japanese
market, supervising and training tour escorts and planning air charter. Mr. Yuen
has over 30 years of extensive knowledge and experience in the tourism industry.
Prior to founding EGL, Mr. Yuen studied Japanese at the Japanese language
school of the Kansai International Students Institute, Japan, for about six months
in 1973 and 1975, respectively. He then worked as a local tour guide of Mayfair
Tour & Travel Service Limited (美華旅行社有限公司), a travel agency, serving
Japanese tourists in Hong Kong from September 1971 to May 1978. In 1987 he
founded EGL Tours.
He has been invited to Japan to share his experience in the tourism industry.
Having committed to promoting tourist sites in Japan for many years, Mr. Yuen
was appointed as sightseeing ambassador (觀光大使) of a number of places in
Japan over the years, including: Kagoshima (鹿兒島) in 2012, Wakayama (和歌
山), Okinawa (沖繩), Miyazaki Prefecture (宮崎縣), Yamagata Prefecture (山形縣),
Tottori Prefecture (鳥取縣), Kansai region (關西), Tokushima Prefecture (德島縣)
and Noboribetsu in Hokkaido (北海道登別市) in 2013; and Ishikawa Prefecture
(石川縣) in 2014. He has also served as sightseeing ambassador 10 times. Mr.
Yuen was awarded the title of Capital Outstanding Leader of 2013 (資本傑出領袖
2013) by the magazine “Capital” in 2014.
Mr. Yuen is the spouse of Ms. Lee, an Executive Director of EGL.
Mr. Huen, Kwok Chuen (𧝁國全), aged 57, was appointed as an Executive
Director of EGL and the spokesman of EGL. He is responsible for overseeing
development, public relations, inbound tour services, specialised gourmet tours
and the Macau subsidiary of EGL. Mr. Huen has over 30 years of experience in
the tourism industry. Prior to joining EGL, Mr. Huen completed his secondary
education at Grammar College in July 1976 and further completed a full-time
one-year course in Japanese studies at the Asia-Africa Linguistic Institute, Japan,
in March 1978.
Mr. Leung, Shing Chiu (梁成釗), aged 59, was appointed as an Executive
Director of EGL. He is responsible for managing the receiving services for
outbound tours in Japan, frontline sales, customer services, accounting and
administration matters of EGL. Mr. Leung has over 30 years of experience in the
EGL has long term cooperation
and leadership from reputable
management
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 38 of 53
tourism industry. Prior to joining EGL, Mr. Leung completed his secondary
education at Nobel College in July 1973 and furthered his studies in Japanese at
Hong Kong at Dai-ichi Japanese Language and Cultural School (第一日語暨文化
學校) (formerly known as 香港第一日文專科學校) until July 1977. He completed
an advanced tourism management programme (旅遊業高級管理課程) organised
by the Federation of Hong Kong Chinese Travel Agents Limited (formerly known
as The Federation of Hong Kong Travellers Limited) in May 1989.
Ms. Lee, Po Fun (李寶芬), aged 55, was appointed as an Executive Director of
EGL. She is responsible for overseeing the information technology department,
human resources development, outbound tour services and the overall
operations of EGL. Ms. Lee has over 30 years of experience in the tourism
industry. Ms. Lee completed her secondary education at Kau Yan College in 1978
and received a diploma in Japanese (Basic 1) from the department of extramural
studies of the Chinese University of Hong Kong in July 1990.
Ms. Lee is the spouse of Mr. Yuen, the Chairman and an Executive Director of our
Company.
Mr. Cheang, Chuen Hon (鄭存漢), aged 50, was appointed as the financial
controller of EGL. He is responsible for supervision and management of the
Group’s financial matters. Mr. Cheang joined EGL in June 2001 as a finance
manager before being promoted as the financial controller of EGL Tours in April
2004.
Mr. Cheang has over 25 years of extensive accounting and financial experience.
Prior to joining EGL, from July 1988 to October 1989, Mr Cheang served as an
audit senior of Eric C. K. Fok, CPA, Hong Kong. From November 1989 to October
1991, Mr. Cheang worked through various grades in Glass Radcliffe & Co.,
Chartered Accountants and left as an audit senior II. From October 1991 to April
2001, Mr. Cheang served as an assistant accounting manager and an accounting
manager of Tse Sui Luen Jewellery Company Limited, currently a wholly-owned
subsidiary of Tse Sui Luen Jewellery (International) Limited (stock code: 417)
whose shares are listed on the main board of the Stock Exchange.
Mr. Cheang graduated from the University of Hong Kong with a bachelor degree
in social sciences in November 1988 and later obtained a master degree of
science in accountancy from the Hong Kong Polytechnic University in November
2001. Mr. Cheang is a fellow member of the Hong Kong Institute of Certified
Public Accountants, a fellow member of the Association of Chartered Certified
Accountants and a Certified Finance and Treasury Professional of the Finance
and Treasury Association Limited.
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 39 of 53
Company history
Mr. Yuen, Mr. Huen and Mr. Leung had gained substantial experience in the travel
industry by serving Japanese tourists in Hong Kong or as tour escorts for tours
bound for Japan prior to setting up EGL Tours. As they began their career in
frontline positions, they accumulated vast experience and developed strong
acumen for travel products that match up to customers’ preference, as well as
deep understanding of customers’ needs and concerns.
In 1987, Mr. Yuen initiated the setting up of EGL Tours with the aim of providing
travel tour ground handling services in Japan for tours from Hong Kong to Japan
for other travel agents in Hong Kong. Mr. Huen and Mr. Leung joined him that
same year. They, together with Ms. Lee, have managed EGL Tours and the
Group since 1987. Other passive investors became shareholders of EGL Tours
later in 1987. These initial shareholders used their personal resources to invest in
EGL Tours.
In 1994, EGL began to introduce its own packaged tours to Japan under the
brand of “EGL Tours (東瀛遊)” and moved to then Tsim Sha Tsui branch.
Thereafter, EGL opened a number of branches in other strategic locations in
Hong Kong and Macau, and continued to diversify the products and services to
offer package tours to over 250 cities in over 60 countries, including Japan, China,
Korea, Malaysia and Singapore, Taiwan, Thailand, Europe, Australia, Vietnam,
Indonesia, Brunei, Dubai, Turkey and India.
EGL Tours has memberships in three out of the eight association members,
including Society of IATA Passenger Agents Limited, Hong Kong Association of
China Travel Organisers Limited and Hong Kong Japanese Tour Operators
Association Limited.
Under the motto: “Strive for consistent improvement of high-quality service, with
customer in our heart and sincerity in our practice” (以誠為本、以客為尊、不斷
提高優質服務 ), which is epitomised by “EGL – Everything Good and
Long-lasting”, “東瀛遊 EGL Tours” brand to represent safe and carefree
travelling and EGL have become a travel enterprise with revenue of over HK$1.6
billion in 2013.
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 40 of 53
Exhibit 44: Business Milestones
Year Corporate milestones Product offerings
1987 EGL principal operating subsidiary, Evergloss Tours Company Limited (which
was renamed to EGL Tours Company Limited in 2008), was established in Hong
Kong, with the aim to provide travel tour ground handling services and
organising leisure tours from Hong Kong to Japan for other travel agencies in
Hong Kong.
1994 EGL moved to then Tsim Sha Tsui branch. EGL began to operate own package tours under the
brand name of “EGL Tours (東瀛遊)”.
1997 EGL opened branch in Tsuen Wan.
1999 EGL opened branch in Shatin.
2000 EGL tapped into the FIT product business, selling air tickets and hotel
accommodation as an agent.
2001 EGL opened branch in Causeway Bay.
EGL launched website at www.i-evertravel.com which allowed customers to
obtain information about package tours and make bookings for designated
products directly.
2002 EGL opened branch in Mongkok.
2003 EGL changed trade name from “Evergloss” to “EGL Tours” and adopted current
trademark.
EGL website address was changed to www.egltours.com.
EGL began to offer study tour.
2004 EGL launched call centre for hotline booking services for retail customers.
2005 EGL opened branches in Tuen Mun and Kwun Tong.
EGL incorporated Evergloss Tours (Macau) to develop our travel agency
business in Macau.
2006 EGL opened branch in Macau.
2007 EGL Tower in Kwun Tong, where office premises and call centre are located was
named under corporate brand name “EGL Tours (東瀛遊)”.
2008 EGL changed Company name from Evergloss Tours Company Limited to EGL
Tours Company Limited.
EGL began to offer cruise tours and self-driving travel
products.
2009 EGL began to organise gourmet tours to Japan.
2011 EGL began to offer wedding tours.
2013 EGL opened branch in Yuen Long. EGL began to offer marathon tours.
Source: Company, OP Research
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 41 of 53
Corporate structure
Exhibit 45: EGL Group structure
Source: Company, OP Research
Notes:
(1) The sole shareholder of Likang is the Trustee acting as trustee of the Yuen Family Trust. Yuen Family Trust is a discretionary trust set up by Mr. Yuen whose discretionary objects are Ms. Lee and Ms. Yuen Ho Yee, wife and daughter of Mr. Yuen respectively and both an associate of Mr. Yuen. Mr. Yuen is the settlor and protector of the Yuen Family Trust.
(2) The sole shareholder of Yohki Ryokoh is the Trustee acting as trustee of the Happyyau Family Trust. Happyyau Family Trust is a discretionary trust set up by Mr. Yau Shui Fung whose discretionary objects are Ms. Li Siu King, wife and an associate of Mr. Yau Shui Fung, and Tung Wah Group of Hospitals. Mr. Yau Shui Fung is the settlor of the Happyyau Family Trust. Ms. Li Siu King is the protector of the Happyyau Family Trust.
EGL Holdings
(6882 HK)
EGL
Management
Evergloss
EGL Japan EGL Tours
i-Evertravel
EGL Macau
Likang Ms. Lee Kwok Lai Mr. Leung Lam Wai Man Lui Lok PunChong
Cheung PoYohki Ryokoh
Yuen Family
TrustMr. Huen
Happyyau
Family Trust
100% 100% 100%
74.63%
100%
100% 100%
100%
99.94%0.06%
26.69% 0.91% 23.08% 9.95%
100%
4.98% 4.98% 3.17% 26.24%
Value Partners
6.22%
Public
free float
19.15%
Management Passive investors
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 42 of 53
Appendix I: Travel industry market data details
Package tour market in Hong Kong and Macau
The total revenue from outbound package tours in Hong Kong and Macau is
expected to increase from HK$11,086 mn in 2014E to HK$14,157 mn in 2018E,
at a CAGR of 6.3%.
Exhibit 46: Package tour market in Hong Kong and Macau
Source: Ipsos Report, OP Research
Historical price trend of package tours in Hong Kong
The average price of package tours per person for major destinations over the
period from 2009 to 2013 increased steadily with an exception for package tours
bound for Japan in 2011 due to the earthquake and tsunami in Japan in March
2011.
Exhibit 47: Average price of package tours per person
Source: Ipsos Report, OP Research
1,902 1,989 1,545 1,905 2,654 2,761 2,899 3,059 3,256 3,484
3,875 4,314 4,454 5,130
5,686 6,121 6,493 6,872 7,432
8,027 1,591
1,847 1,948
2,032
2,073 2,205
2,321 2,437
2,547 2,646
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
Japan Asia ex-Japan Europe and others
(HK$ mn)(HK$ mn)
7,3688,150 7,947
9,067
10,14311,087
11,71312,368
13,23514,157
13,454 14,109
15,171
17,438
19,182
7,308 8,120
6,482
8,550 8,398
5,670 6,501 5,769 6,688 7,001
3,538 4,423 3,846 3,965 4,272
0
5,000
10,000
15,000
20,000
25,000
2009 2010 2011 2012 2013
Europe Japan Overall Asia ex-Japan
(HK$)
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 43 of 53
FIT packages are expected to pose a growth in terms of total revenue at a CAGR
of approximately 5.6% in the period from 2014E to 2018E.
Exhibit 48: FIT package market in Hong Kong
Source: Ipsos Report, OP Research
Travel products bound for Japan from Hong Kong and Macau
The total revenue from package tours and FIT packages bound for Japan from
Hong Kong and Macau is expected to increase from HK$3,085 mn in 2014E to
HK$3,949 mn in 2018, at a CAGR of 6.4% as driven by annual household
disposable income spent on travel and expected GDP growth
Exhibit 49: FIT package market in Hong Kong
Source: Ipsos Report, OP Research
221 226 151 204 308 324 344 375 413 465
3,432 3,509 3,665 3,801 4,228 4,455 4,697 4,956 5,239 5,552
1,605 1,640 1,582 1,583 1,905 1,937 1,601
1,843 1,929
2,338
0
4,000
8,000
12,000
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
Japan Asia ex-Japan Europe and others
(HK$ mn)(HK$ mn)
5,258 5,375 5,398 5,588
6,441 6,716 6,6427,174
7,5818,355
211 226 151 204 308 324 344 375 413 465
1,902 1,989 1,545
1,905
2,654 2,761 2,899 3,059 3,256
3,484
0
1,000
2,000
3,000
4,000
5,000
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
FIT Tours
(HK$ mn)(HK$ mn)
2,113 2,215
1,696
2,109
2,9623,085
3,243 3,4343,669
3,949
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 44 of 53
Exhibit 50: Suppliers details
Traditional package tours Theme tours MICE and tailored tours
Characteristics Tours pre-arranged with general travel
elements including flight,
accommodation, meals and local
transportation and attractions
Tours pre-arranged with special themes
and travel elements
Tours designed more dynamically with
inputs from customers to accommodate
their special requirements or preference
Target customer groups General retail customers Mainly high-income earners and
travel-loving customers with particular
interests
Customers with specific requirements
or events to be included in the tours
Major tours Tours bound for Japan, South Korea,
Taiwan, Malaysia, Singapore and China
Cruise tours
Pre-wedding and wedding tours
Gourmet tours
Sport events tours (e.g. marathon and
cycling tours)
Scenic photography tours
Study and education tours
Corporate incentive tours
Number of tours in 2013 6,984 58 415
Length of tours Generally 1 to 14 days Generally 4 to 9 days Generally 1 to 12 days
Number of participants
per tour operated by EGL
Generally from 15 to 35 participants Generally from 13 to
42 participants
Depending on the requests of the
customers, up to 172 participants
Source: Company, OP Research
Exhibit 51: EGL package tours revenue by tour type
Source: Company, OP Research
94.3%93.0% 92.6%
90.8%
4.9%6.0%
5.8%
7.4%
0.8% 1.0% 1.6% 1.8%
86%
88%
90%
92%
94%
96%
98%
100%
2011 2012 2013 1H14
Package tours MICE tours Theme tours
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 45 of 53
Appendix II: Awards
EGL make continuous support and focus on Japan Tours, especially under down
cycle like period after tsunami in March 2011. Their contributions to the travel
industry are recognised by receiving number of awards, such as “JNTO Chairman
Award (JNTO 理事長表揚獎)” from Japan National Tourist Organization in 2014
and “2013 Hong Kong Premier Service Brand (2013 香港卓越服務品牌)” from
The Chinese Manufacturers’ Association of Hong Kong and Hong Kong Brand
Development Council.
Exhibit 52: Awards of EGL
Year Award Issuing authority
1998, 1999, 2003, 2004, 2010-2013 Top Agent Award Cathay Pacific Airways
2010-2013 Top Agent Award Dragonair
2010-2012 Top Agency Award Asiana Airlines
2010, 2012-2013 Best Performance / Best Retail Agent Award Hong Kong Airlines / Hong Kong Express Airways
2011 Best Travel Agency Hong Kong TTG
2011 Hong Kong Corporate Brand – Potential Hong Kong
Enterprise Brand Award
Mingpao
(香港驕傲企業品牌– 潛質香港企業品牌獎)
2011 The 3rd Executive Tourism Agency Recognition
Award
Japan Tourism Agency
(第 3屆觀光廳長官表彰獎)
2012 Top Service Awards 2012 – Travel Agent Next Magazine
(服務第壹大獎 2012 – 旅行社)
2012 Ambassador of Kagoshima Governor of Kagoshima Prefecture, Japan
2012 Guangdong Travel Partner Award Tourism Administration of Guangdong Province, China
(廣東旅遊貢獻獎)
2012-2013 Newly-wed Couples’ Favourite Honeymoon Travel
Service
ESD Life
(新人至愛蜜月旅遊服務)
2013 Best Travel Agency Service Award Sing Tao Daily
2013 Top Service Awards 2013 Next Magazine
(服務第壹大獎 2013)
2013 Newly-wed Couples’ Favourite Overseas Wedding
Service
ESD Life
(新人至愛海外婚禮服務)
2013 Prestigious Corporate Brand Award – Hong Kong
Conscience Employer Brand
Mingpao
(卓越企業品牌選舉– 香港良心僱主品牌)
2013 Prestigious Corporate Brand Award – Hong Kong
Potential Brand
Mingpao
(卓越企業品牌選舉– 香港潛質品牌)
2007-2013 Taiwan Tourism Award Taiwan Tourism Bureau
2012-2013 Plaque of Appreciation Gyeonggi Tourism Organization, Japan
2013 Certificate of Appreciation to Tourism Contribution Kagoshima Prefecture Visitors Bureau, Japan
(旅遊貢獻感謝狀) (鹿兒島縣觀光連盟)
2013 Appreciation For Thailand Consumer Fair 2013 Tourism Authority of Thailand (Hong Kong Office)
2013 Certificate of Appreciation to Tourism Contribution Wakayama Electric Railway Co.Ltd, Japan
(旅遊貢獻感謝狀) (和歌山電鐵株式會社)
2013 New Okinawa Civil Ambassador Governor of Okinawa Prefecture, Japan
2013 Tourism Ambassador of Wakayama Prefecture Governor of Wakayama Prefecture, Japan
2013 Plaque of Appreciation Korea Tourism Organization
2013 International Tourism Ambassador of Tottori
Prefecture
Governor of Tottori Prefecture, Japan
2013 Ambassador of Miyazaki Prefecture Governor of Miyazaki Prefecture, Japan
2013 Tourism Ambassador of Yamagata Prefecture Governor of Yamagata Prefecture, Japan
2013 Tourism Ambassador of Kansai region Union of Kansai Governments Chairman, Japan
2013 International Tourism Ambassador of Tokushima
Prefecture
Governor of Tokushima Prefecture, Japan
2013 Tourism Ambassador of Noboribetsu in Hokkaido Mayor of Noboribetsu in Hokkaido, Japan
2013 2013 Best Retail Agent Award Hong Kong Airlines
2014 Tourism Ambassador of Ishikawa Prefecture Governor of Ishikawa Prefecture, Japan
Source: Company, OP Research
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 46 of 53
Appendix III: Employee structure
EGL had a total of around 679 employees at the end of FY14, of which 614 are in
Hong Kong and 65 are in Macau. EGL have 205 full-time tour escorts, who are
their employees, and 565 freelance tour escorts, who are self-employed persons.
They are led and supervised by the Executive Directors and the senior
management who generally have over 10 years of relevant experience with EGL.
Some of the staff who serve at EGL branches and call centres have also obtained
tour escort licence and serve as EGL back-up tour escorts who can serve in tours
during peak seasons. EGL tour escorts, including the freelance tour escorts and
back-up tour escorts are all provided with up-to-date training necessary to meet
the service standard. The freelance and back-up tour escorts generally do not
enjoy the full range of benefits which are available to the full-time tour escorts.
Exhibit 53: EGL employee structure
Source: Company, OP Research
Exhibit 54: EGL employee structure
Offices Number of employees
Directors and management office 15
Tour escorts 205
Inbound 2
Macau office 53
Branch sales and call centres 77
Customer services 7
Accounts 36
Administration 13
Outbound tour operations 76
Product development 9
MICE tours 19
Human resources development 11
Information technology 23
FIT 113
Marketing and public relations 20
Total 679
Source: Company, OP Research
Yuen Man Ying
Huen Kwok Chuen Leung Shing Chiu Lee Po Fun
Directors and
Management
Office
InboundMacau
Subsidiary
Branch
Sales
and
Call
Centers
Customer
ServicesAccounts Administration
Outbound
TourOperations
(Japan)
Outbound
TourOperations
(Asia,
Ex-Japan,
Europe
and
Others)
Product
Development
MICE
Tours
Human
Resources
Development
Information
Technology
FIT
Marketing and
Public
Relations
Executive Directors
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 47 of 53
Appendix IV: Properties and branches details
Properties
EGL has an asset-light mode without owning any property. EGL had 11 leased
properties in Hong Kong (located in Kwun Tong, Tsim Sha Tsui, Mong Kok,
Causeway Bay, Shatin, Tsuen Wan, Yuen Long and Tuen Mun) and three leased
properties in Macau, for use as principal place of business, offices, branches and
call centres with an aggregate gross floor area of approximately 74,442 square
feet.
Exhibit 55: Branches detail
Appro. Gross
floor area (sq.ft.)
Expiry of current
lease agreement
Rental expenses (HK$ mn) Monthly rental expense
per sq.ft (6)
(HK$/sq.ft.) Branch FY11 FY12 FY13 1H14
Mongkok 2,345 31-Mar-17 1.6 1.8 1.8 1.0 70.9
Causeway Bay(1)
2,695 30-Nov-14 1.7 1.8 1.9 0.9 58.6
Shatin 1,586 15-Aug-16 0.9 0.9 1.0 0.5 55.0
Tsuen Wan(2)
1,430 31-Jul-15 0.7 0.8 0.8 0.4 46.9
Tuen Mun 1,089 6-Apr-17 1.5 1.5 1.7 0.9 141.9
Tsim Sha Tsui(3)
6,366 31-Oct-17 0.7 0.7 1.1 0.7 18.2
Yuen Long(4)
748 14-Oct-16 - - 0.1 0.4 78.2
Macau(5)
1,159 31-Oct-17 0.5 0.6 0.6 0.4 52.6
Total 17,418
7.6 8.1 9.0 5.2 49.9
Source: Company, OP Research
Note:
1. The lease for Causeway Bay branch is expected to be renewed to 30 November 2017, subject to the signing of the renewal agreement.
2. Branch in Tsuen Wan was moved to the current location from another location in September 2011.
3. Branch in Tsim Sha Tsui was moved to the current location from another location in April 2013. The premises is leased from Great Port, a connected person of EGL
4. Branch in Yuen Long was opened in November 2013.
5. Branch in Macau is located on the premises leased from Great Port, a connected person of EGL
6. The monthly rental expense per square feet represents the average monthly rental expense for 1H2014.
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 48 of 53
Appendix V: Regulations on the industries
Travel Agents Registry
The TAR was established in December 1985. It is responsible for the
administration of the TAO. The TAR aims to raise the standard of the trade
through regulation of travel agents. The TAR strives to protect the interest of
outbound travellers and inbound visitors and enhance the reputation of Hong
Kong as a tourist-friendly city.
Travel Industry Council of Hong Kong
Travel agents are only required to contribute 0.15% of every outbound fare to TIC
Hong Kong as council levy. To apply for ordinary membership of TIC Hong Kong,
travel agents need to have a minimum paid-up capital of HK$500,000, plus an
additional HK$250,000 for each branch office. At least one manager who has a
minimum of two consecutive years’ relevant practical experience within the recent
five years and another full-time staff member
Travel Insurance
Travel agents can be registered as insurance agents with IARB set up by the
HKFI in order to hold himself out to advise on or arrange contracts of insurance in
or from Hong Kong as an agent or subagent of one or more insurers
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 49 of 53
Appendix VI: Suppliers details
Selection of land operators
EGL will base on track record and relevant experience of the land operators, the
travel elements offered, the price and holding of the relevant licences to select
suitable land operators for their package tours.
EGL usually select more than one land operator for a particular destination as
back up. Non-Japan Tours are required to strictly follow the agreed itineraries and
the execution of the tours in accordance with the required safety standards and
code of conduct EGL tour escort will monitor the quality of the land operators and
will communicate with the land operator or the service provider to resolve the any
issue arisen during the tour .
Exhibit 56: Supplier details
Suppliers Land operators Airlines Hotel operators
Number during the Track
Record Period
Around 81
Generally maintain relationship with more than 1
land operator for most destinations to avoid
reliance
Around 57 Around 483
Master service agreement
and terms
Standard service agreement, generally with
detailed quality and safety standards and
operators’ obligations:
maintain sufficient insurance
handle customer complaints
handle accidents and report to EGL
indemnify EGL for loss by their default
not to coerce customers to purchase or
accept additional items
not to sub-contract to other operators
EGL may purchase individual flight
seats, make block reservation or
charter flight. Terms of purchase
depends on airlines and whether it
is peak season
Generally offer EGL preferential
rates based on sales volume
compared with rates offered to
walk-in customers, and some
offer further discounts or rebates
to EGL depending on relationship
with the relevant hotel operators
Length of term Generally one year, subject to renewal and terminable by any default or by one month’s notice
Deposit Depending on relationship, deposit usually not
required for non-peak seasons
Deposit or bank guarantee may be
required depending on the airline,
especially for peak seasons.
Cancellation fee up to full amount
payable for unutilised seats, full
amount for block purchase and
charter flight
Deposit or full payment may be
required upon confirmation or
one-month in advance for peak
season, depending on practice of
relevant hotel operators
Payment term Generally settled within 14 days after receipt of
invoices. Some operators maintain open
accounts with us or give us certain credit periods
Varies depending on different
types of booking and terms offered
by the airlines
Tours: Generally settled monthly or
after receipt of invoices
FIT products: Generally settled
before check-in date
Payment method Cash, cheques or remittance Mostly through settlement system
operated by IATA, or by cheque
Cash, cheques or remittance
Source: Company, OP Research
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 50 of 53
Financial Summary
Year to Dec FY13A FY14A FY15E FY16E FY17E
Year to Dec FY13A FY14A FY15E FY16E FY17E
Income Statement (HK$ mn)
Ratios
Package tours 1,499 1,525 1,734 1,923 2,136
Gross margin (%) 21.4 20.2 20.5 20.7 20.9
FIT products 76 75 88 99 110
Operating margin (%) 7.4 5.4 7.5 8.0 8.6
Ancillary travel related
products and services 73 85 93 102 111
Net margin (%) 6.2 4.4 6.3 6.8 7.3
Turnover 1,647 1,685 1,916 2,123 2,358
Selling & dist'n exp/Sales (%) 5.2 5.4 5.5 5.3 5.2
YoY% 21 2 14 11 11
Admin exp/Sales (%) 8.8 9.8 7.7 7.5 7.3
COGS (1,294) (1,344) (1,523) (1,684) (1,866)
Payout ratio (%) 0.0 0.0 50.0 50.0 50.0
Gross profit 353 341 393 439 492
Effective tax (%) 15.1 17.4 15.0 15.0 15.0
Gross margin 21.4% 20.2% 20.5% 20.7% 20.9%
Total debt/equity (%) 0.0 0.1 0.0 0.0 0.0
Other income (2) 5 2 2 2
Net debt/equity (%) Net cash Net cash Net cash Net cash Net cash
Selling & distribution (85) (91) (105) (113) (122)
Current ratio (x) 1.8 1.9 2.2 2.3 2.4
Admin (145) (165) (148) (159) (172)
Quick ratio (x) 1.8 1.9 2.1 2.3 2.4
Other opex 0 0 0 0 0
Inventory T/O (days) 1 1 1 1 1
Total opex (230) (257) (253) (272) (293)
AR T/O (days) 1 0 0 0 0
Operating profit (EBIT) 121 89 142 168 200
AP T/O (days) 13 15 15 15 15
Operating margin 7.4% 5.3% 7.4% 7.9% 8.5%
Cash conversion cycle (days) (11) (13) (13) (13) (13)
Provisions 0 0 0 0 0
Asset turnover (x) 3.9 3.5 3.4 3.0 2.8
Interest Income 1 1 1 2 2
Financial leverage (x) 2.2 2.1 1.9 1.8 1.7
Finance costs (1) 0 0 0 0
EBIT margin (%) 7.4 5.4 7.5 8.0 8.6
Profit after financing costs 121 90 143 170 202
Interest burden (x) 1.0 1.0 1.0 1.0 1.0
Associated companies & JVs 0 0 0 0 0
Tax burden (x) 0.8 0.8 0.9 0.9 0.9
Pre-tax profit 121 90 143 170 202
Return on equity (%) 53.1 32.6 41.2 36.4 35.1
Tax (18) (16) (21) (26) (30)
ROIC (%) (102.1) (61.5) (94.9) (95.5) (101.8)
Minority interests 0 0 0 0 0 Net profit 103 75 122 145 172
Year to Dec FY13A FY14A FY15E FY16E FY17E
YoY% 150 (28) 63 19 19
Balance Sheet (HK$ mn)
Net margin 6.2% 4.4% 6.3% 6.8% 7.3%
Fixed assets 8 9 14 18 22
EBITDA 124 93 146 175 208
Investment properties 0 0 0 0 0
EBITDA margin 7.6% 5.5% 7.6% 8.2% 8.8%
Intangible assets & goodwill 0 0 0 0 0
EPS (HK$) 0.257 0.148 0.242 0.288 0.342
Associated companies & JVs 0 0 0 0 0
YoY% 150 (42) 63 19 19
Long-term investments 6 5 5 5 5
DPS (HK$) 0.000 0.000 0.121 0.144 0.171
Other non-current assets 1 1 1 1 1
Non-current assets 15 15 19 23 27
Year to Dec FY13A FY14A FY15E FY16E FY17E Cash Flow (HK$ mn)
Inventories 5 4 4 5 5
EBITDA 124 93 146 175 208
AR 2 1 2 2 2
Chg in working cap 46 (6) 17 16 18
Prepayments & deposits 109 106 120 133 148
Others 1 3 0 0 0
Other current assets 28 25 25 25 25
Operating cash 171 89 164 190 225
Cash 330 324 478 577 695
Interests paid 1 1 1 2 2
Current assets 475 460 628 741 875
Tax (8) (28) (2) (21) (26) Net cash from operations 164 62 163 171 202
AP 48 54 61 67 75
Tax 14 2 21 26 30
Capex (5) (5) (10) (11) (12)
Accruals & other payables 206 184 210 232 258
Investments 0 0 0 0 0
Bank loans & leases 0 0 0 0 0
Dividends received 0 0 0 0 0
CB & othe debts 0 0 0 0 0
Sales of assets 0 0 0 0 0
Other current liabilities 0 0 0 0 0
Interests received (1) 0 0 0 0
Current liabilities 268 241 292 325 363
Others (11) 0 0 0 0 Investing cash (18) (5) (10) (11) (12)
Bank loans & leases 0 0 0 0 0
FCF 147 57 153 160 190
Trade and other receivables-LT 0 0 0 0 0
Issue of shares 0 134 0 0 0
Deferred tax & others 0 0 0 0 0
Buy-back 0 0 0 0 0
MI 0 0 0 0 0
Minority interests 0 0 0 0 0
Non-current liabilities 0 0 0 0 0
Dividends paid (45) (197) 0 (61) (72) Net change in bank loans 0 0 0 0 0
Total net assets 222 234 356 440 539
Others 0 0 0 0 0 Financing cash (45) (63) 0 (61) (72)
Shareholder's equity 222 234 356 440 539
Share capital 3 50 50 50 50
Net change in cash 102 (6) 153 99 118
Reserves 219 184 305 389 489
Exchange rate or other Adj 0 0 0 0 0 Opening cash 228 330 324 478 577
BVPS (HK$) 0.56 0.47 0.71 0.87 1.07
Closing cash 330 324 478 577 695
Total debts 0 0 0 0 0
CFPS (HK$) 0.411 0.124 0.324 0.340 0.402 Net cash/(debts) 352 346 499 599 717
Source: Company, OP Research
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 51 of 53
Exhibit 57: Peer Group Comparison
Company Ticker Price
Mkt cap
(US$m)
3-mth avg
t/o
(US$m)
PER Hist
(x) PER FY1 (x)
PER
FY2
(x)
EPS FY1
YoY%
EPS
FY2
YoY%
3-Yr EPS
Cagr (%) PEG (x)
Div yld
Hist (%)
Div yld
FY1
(%)
P/B
Hist (x)
P/B
FY1 (x)
EV/
Ebitda
Hist
EV/
Ebitda
Cur Yr
Net
gearing
Hist (%)
Gross
margin
Hist (%)
Net
margin
Hist
(%)
ROE
Hist (%)
ROE
FY1 (%)
Sh px
1-mth %
Sh px
3-mth %
Egl Holdings Co 6882 HK 1.93 125 0.8 13.0 8.0 6.7 63.2 19.1 32.1 0.25 0.0 6.3 4.14 2.73 6.7 3.2 Net cash 20.2 4.4 32.6 41.2 3.8 (0.5)
HSI
27,523.72 11.7 13.2 12.0 (11.8) 10.6 2.2 6.09 3.0 3.0 1.50 1.42 12.9 10.8 (1.2) 10.8
HSCEI
14,132.16 10.2 9.9 8.9 2.9 11.0 7.3 1.36 3.1 3.1 1.40 1.31 13.8 13.2 (2.7) 17.1
CSI300
4,840.98 20.3 17.8 15.5 14.5 14.4 15.2 1.17 1.3 1.6 2.83 2.55 13.9 14.4 4.8 37.4
Adjusted sector avg*
49.7 59.0 39.5 37.0 43.7 1.6 1.34 0.9 N/A 5.09 6.43 N/A N/A 0.2 48.9 9.5 11.4 4.5 7.4 35.6
China Travel Hk 308 HK 3.60 2,615 8.9 11.6 17.3 16.8 (32.8) 2.9 (5.3) N/A 2.5 2.9 1.30 1.19 15.1 8.8 0.0 46.0 38.9 11.6 7.0 13.6 45.7
Travel Expert 1235 HK 0.98 65 0.1 11.5 N/A N/A N/A N/A N/A N/A 4.3 N/A 3.25 N/A 5.6 N/A 0.0 N/A 13.7 30.0 N/A 12.6 4.3
Miramar Hot &Inv 71 HK 13.82 1,029 0.2 6.1 N/A N/A N/A N/A N/A N/A 3.2 N/A 0.61 N/A 8.1 N/A 0.0 N/A 41.6 10.3 N/A 23.4 39.9
Success Universe 487 HK 0.27 172 0.2 13.5 N/A N/A N/A N/A N/A N/A N/A N/A 1.29 N/A (11.0) N/A 0.0 5.3 7.4 (0.5) N/A 3.8 15.9
Sh Jinjiang In-B 900929 CH 5.34 707 2.0 74.8 N/A N/A N/A N/A N/A N/A 0.7 N/A 3.61 N/A 498.4 N/A 0.0 9.1 2.7 5.8 N/A 69.4 106.8
Beijing Utour -A 002707 CH 89.98 3,026 10.2 143.2 105.2 76.1 36.1 38.4 37.3 2.82 0.1 0.1 27.74 23.43 146.1 85.5 0.0 8.3 2.6 25.1 22.9 33.0 92.1
China Cyts-A 600138 CH 26.46 3,090 106.5 49.9 41.0 32.3 21.7 27.0 25.4 1.61 0.4 0.6 4.27 3.91 25.0 19.9 4.3 19.0 3.5 9.8 9.7 (1.9) 50.6
China Internat-A 601888 CH N/A N/A 11.5 N/A 27.3 22.4 24.8 21.8 23.4 1.17 0.8 N/A N/A N/A N/A N/A 0.0 23.0 7.5 15.6 16.7 N/A N/A
Beijing Jingxi-A 000802 CH 29.94 1,877 41.7 140.6 71.3 62.4 97.3 14.3 38.9 1.83 0.1 N/A 12.58 2.64 123.9 N/A 0.0 47.5 19.4 9.0 3.9 57.7 85.4
Shenzhen Tempu-A 300178 CH 48.70 4,229 88.6 202.2 127.5 94.2 58.6 35.3 50.6 2.52 0.1 0.1 21.14 11.04 132.7 117.1 0.0 63.8 29.4 11.0 12.3 70.9 140.2
Xi'An Tourism-A 000610 CH 16.75 640 22.0 N/A 1,675.0 837.5 N/A 100.0 (165.7) N/A N/A N/A 5.17 7.51 (20,611.0) 226.5 0.0 6.6 (3.0) (3.4) 0.6 7.0 44.4
Ctrip.Com-Adr CTRP US 71.94 9,734 170.9 252.4 82.5 36.8 206.0 124.1 116.7 0.71 N/A 0.0 6.33 6.35 1,962.8 108.1 0.0 71.4 3.3 0.0 5.6 10.4 53.2
Elong Inc-Sp Adr LONG US 19.34 695 0.4 N/A N/A N/A N/A N/A (188.2) N/A N/A N/A 2.64 N/A (10.7) (4.4) 0.0 67.7 (24.8) (23.2) (58.2) 15.6 15.7
Qunar Cayman-Adr QUNR US 50.48 6,035 43.8 N/A N/A N/A N/A N/A (159.8) N/A N/A 0.0 N/A N/A (21.2) (40.1) 0.0 74.1 (105.1) N/A 172.6 3.0 75.2
Tuniu Corp-Adr TOUR US 20.00 1,280 7.2 N/A N/A N/A N/A N/A (28.0) N/A N/A N/A 5.54 9.58 (13.0) (8.1) 0.0 6.4 (12.7) N/A (61.7) 20.5 33.1
Priceline Group PCLN US 1,208.18 62,628 788.3 26.1 21.8 18.1 19.4 20.7 18.4 1.19 N/A 0.0 7.26 5.99 19.3 17.6 0.0 89.8 28.7 30.6 29.3 1.2 (0.7)
Expedia Inc EXPE US 105.50 13,458 147.4 34.1 29.2 21.8 17.1 33.9 23.6 1.23 0.7 0.6 8.08 5.99 14.6 13.0 0.0 79.5 6.9 25.0 21.5 7.3 14.3
Tripadvisor Inc TRIP US 79.77 11,448 151.0 50.5 35.7 27.7 41.4 29.0 33.1 1.08 N/A N/A 9.71 8.38 27.5 21.0 0.0 96.8 18.1 20.8 22.7 (1.9) (10.1)
Orbitz Worldwide OWW US 11.51 1,286 29.0 71.9 38.6 23.5 86.3 64.1 53.9 0.72 N/A N/A 22.52 12.24 10.0 9.3 364.7 80.7 1.9 5.1 37.9 (2.2) (0.5)
Makemytrip Ltd MMYT US 18.49 771 6.5 N/A 102.7 39.4 N/A 160.6 (216.0) N/A N/A 0.0 4.90 4.89 (109.6) 41.9 0.0 46.4 (6.1) (11.4) (3.3) (21.5) (26.1)
Travelzoo Inc TZOO US 13.24 195 2.2 11.9 66.2 42.3 (82.0) 56.5 (38.4) N/A N/A N/A 4.92 3.88 5.9 16.9 0.0 87.4 11.5 38.9 5.7 1.2 36.8
* Outliners and "N/A" entries are in red and excl. from the calculation of averages
Source: Bloomberg, OP Research
Fri, 22 May 2015
EGL Holdings (6882 HK)
Page 52 of 53
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