China Travel International Investment Hong Kong Limited: Detailed Update on Songhua Lake Ski Resort Acquisition

Key Points of the Supplemental Announcement

• Acquisition Overview: China Travel International Investment Hong Kong Limited (“the Company”) has provided a supplemental announcement regarding its acquisition of equity interests in certain target companies, specifically focusing on the Songhua Lake Ski Resort.
• Valuation and Consideration: The equity value of Target Company A (Songhua Lake Ski Resort) was appraised at approximately RMB 346.1 million as of 31 March 2025, determined using the income approach by CEA.
• Financial Forecasts: The report provides a highly detailed, long-term revenue, gross profit, cost, and capital expenditure forecast spanning from 2025 to June 2064.
• Discount Rate & Key Inputs: The valuation uses a risk-free rate of 1.81%, a market risk premium of 6.50%, and a weighted average cost of capital (WACC) of 7.84%.
• Lease Terms: The main ski resort’s land lease runs until June 2064, with supporting hotel and commercial real estate leases aligned to this period.
• Interest-Bearing Debt: The company holds RMB 755 million in interest-bearing liabilities, primarily with the Shenzhen Branch of Bank of China, maturing between 2025 and 2037.

Detailed Financial and Operational Forecasts

Revenue Projections

• Revenue Segmentation: Revenue streams are broken down into hotel operations, mountain operations, commercial operations, and others.
• Growth Rates: Revenue growth is forecast at around 1% per year from 2025-2035, then flat (0%) from 2036-2064, reflecting a conservative outlook and the expected industry maturity.
• Seasonality: Over 70% of annual revenue is concentrated in the snow season (December to February), with off-season months showing much lower figures.
• Notable Figures: 2026 projected total revenue is RMB 245.48 million, increasing modestly to a plateau at RMB 270 million annually from 2035 to 2063, before dropping in the final half-year period of 2064.

Cost Structure and Gross Profit Margins

• Major Expenditures: Labour, energy conservation, procurement, maintenance, commissions, depreciation/amortization, and other costs are all detailed.
• Depreciation Impact: Gross profit margin is set to rise over time as major fixed assets complete their depreciation schedules, leading to lower reported costs.
• Gross Profit Margins: Margins increase from 22.47% (April-December 2025, off-season) to 43.06% in 2026, gradually rising to around 57% by 2063, reflecting stable costs and steady revenues.

Capital Expenditure (Capex) Forecasts

• Recurring Asset Renewal: Capex includes both routine renewal of fixed assets and significant outlays for property renovations and expansions, such as the westward expansion project and hotel refurbishments.
• Notable Capex Spikes: Large expenditures are forecast for 2030, 2032, 2051, 2053, and especially 2055 (renewal of major assets and lease rights).
• Land Use Right: Land use rights are renewed as required, with the major ski resort lease expiring in 2064 and the west expansion lease running to 2073, although income is only forecast to 2064.

Valuation Methodology

• Discounted Cash Flow (DCF): The enterprise value is calculated using a DCF model based on free cash flows, with a WACC of 7.84% and a terminal growth rate of 0% to prevent over-valuation in the mature phase of the business.
• Enterprise Value: The total enterprise value is RMB 1.101 billion, with the entire shareholders’ equity valued at RMB 346.1 million after deducting interest-bearing debts of RMB 755 million.
• Surplus and Non-Operating Assets: Includes significant monetary funds (surplus assets of ~RMB 36.6 million) and net non-operating assets of RMB 165.4 million, primarily in receivables and idle properties.

Key Assumptions and Risks

• Conservative Growth: Long-term forecasts assume minimal or zero real growth after 2035, in line with the risk-free rate and industry maturity.
• Asset Replacement: Asset lives and replacement cycles are strictly modeled, with new investments scheduled as assets expire, impacting both depreciation and future cash flows.
• Market Comparables: Systematic risk coefficient calculated based on comparable listed tourism companies (Changbai Mountain, Emeishan A, Jiuhuashan Tourism).
• Debt Structure: The company’s debt is largely long-term, with attractive borrowing rates (3.10% average), and no significant refinancing risk before 2037.

Shareholder-Relevant and Price-Sensitive Issues

• Valuation Sensitivity: The conservative terminal growth rate (0%) could limit future upside in valuation, but also reduces the risk of overvaluation.
• Long-Term Revenue Stability: The plateau in revenue and margin forecasts suggests that the Songhua Lake Ski Resort will provide stable but unexciting cash flows after 2035, unless there are new growth initiatives.
• Capex and Asset Renewal: Large capital expenditures in select years (notably 2030, 2032, 2051, 2053, and 2055) could affect free cash flow and distributions to shareholders in those periods.
• Lease Expiry Risk: The main operational forecast ends in June 2064 due to lease expiration, and there is no visibility beyond this period, which could be a long-term risk factor for asset value continuity.
• Leverage and Financial Health: The company carries significant interest-bearing debt, but at relatively low rates and with a long maturity profile, which mitigates near-term refinancing risk.
• Potential Share Price Movement: This comprehensive disclosure of stable, long-term cash flows, prudent valuation assumptions, and clear risk factors could influence investor sentiment. The clear capex cycle and asset renewal requirements may also prompt re-evaluation of future cash flow availability for dividends or reinvestment.

Conclusion

The supplemental announcement provides rare, highly detailed long-term forecasts and valuation inputs for the Songhua Lake Ski Resort acquisition, giving shareholders and investors deep insight into the asset’s income potential, cost structure, capital requirements, and risks. The combination of clear revenue plateauing, prudent discount rate assumptions, and major capex cycles are all critical for valuation and could affect market perception and share price.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should consult their own professional advisers before making investment decisions. The information is based on a company announcement and may be subject to change or clarification by the company or regulatory authorities.

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