JD.com is bargain-hunting in the tourism business. Is Caesars Travel a good target?

Author: Zhan Danqing of Times Finance

The haze of the epidemic still hangs over the tourism industry, but online retailer JD.com chose to invest 450 million yuan to enter the industry at this time.

On April 25, Caesars Tourism (000796.SZ) announced that it planned to raise 1.1 billion yuan through a non-public issuance of shares. Among them, Suqian Hanbang Investment Management Co., Ltd. (hereinafter referred to as "Suqian Hanbang"), a wholly-owned subsidiary of JD.com, subscribed for 73.051948 shares for 450 million yuan, with the largest proportion of shares subscribed, reaching 38.79%.

After the subscription is completed, Suqian Hanbang’s shareholding ratio in Caesars Tourism reached 7.37%, making it one of the top ten shareholders.

Picture source: Ruijing Creative

Times Finance learned from JD.com that Caesars Travel has incorporated business travel products and spiritual consumption products into the JD ecosystem, adding that Product supply chain under JD Travel’s “Business Travel” channel. Caesar Travel will provide high-end business travel, official travel, duty-free product procurement, customized catering, domestic and overseas financial payments and other high-quality products and related consulting services to JD.com’s users, employees, and relevant partners.

In response to the reasons for the investment, JD.com’s public relations department pointed out in an interview with Times Finance on the 25th that JD.com has always been firmly optimistic about the potential for a comprehensive recovery of China’s tourism industry and continues to promote the layout of the tourism sector business. “JD Travel is constantly trying to break through the traditional OTA model and meet all travel-related needs of users before, during and after their trip through the perfect combination of physical goods, logistics and big data, so as to make consumers’ travel more enjoyable. Easy.”

Caesar Travel, established in Beijing in 1993, mainly operates outbound tourism. In July 1997, Caesars Tourism was listed on the Shenzhen Stock Exchange. On April 25, 1.1 billion yuan of funds was raised. In addition to Suqian Hanbang, the financial backers behind it were Wenyuan Fund, China Life Insurance, Shanghai Licheng, and Qingdao Haotian. They all subscribed to Caesars Travel's non-public shares in cash. 25.86%, 17.24%, 12.93%, and 5.17% of the shares issued.

Caesar Tourism pointed out in the announcement that the funds raised will be used to supplement working capital, meet the company's capital needs for business development and daily operating expenses, and ensure the safety of the company's cash flow.

“The strategic investors introduced this time intend to give full play to their respective products, service experience, brand value and resource advantages, and cooperate with the company in terms of resources, investment, brand and marketing. This will help the company obtain Important strategic resources to further expand the tourism business industry chain, which is conducive to the company's long-term development," Caesar Travel further pointed out.

Before introducing JD.com, in February this year, Caesars Travel also introduced strategic investor Jiantou Huawen through stock transfer. The latter’s main business includes investment, finance, real estate, technology consulting, Cultural media, etc.

Behind a series of investment attractions, Caesars Travel’s performance in recent years has been unsatisfactory. In 2019, it achieved revenue of 6.851 billion yuan, a year-on-year decrease of 16.25%; net profit was 124 million yuan, a year-on-year decrease of 32.81%. In 2018, its net profit also fell by 12.22%.

At the same time, in September 2019, HNA Tourism, the controlling shareholder of Caesars Tourism, was involved in a breach of contract on pledged stocks and was forced to reduce its holdings in breach of contract. Caesars Sega and its persons acting in concert became the third shareholder of Caesars Tourism. A major shareholder, Chen Xiaobing, became the actual controller. After Chen Xiaobing came to power, Caesars Tourism gradually adjusted its pace and simultaneously developed tax-free and financial businesses on the basis of its original business.

How much help can JD.com’s entry into the game bring to Caesars Travel? Analysys Tourism and Health Industry Center Analyst Han Mengying told Times Finance that under the epidemic, all tourism companies are facing cash flow shortages. For Caesars Tourism, whether it is short-term operational stability or long-term business layout, a large amount of capital can flow in at this time point, which can alleviate the urgent needs to a certain extent.

“More importantly, vacation travel products, one of Caesar’s main businesses, have an obvious demand for distribution channels. If we can have the support of JD.com’s platform capabilities and traffic in the future, it will improve Caesar’s distribution efficiency. Very beneficial." Han Mengying added.

JD.com has not made many moves in tourism.

Although air tickets, hotels, car rental and other services have been launched for a long time, it was not until June 2014 that the JD Travel Channel was officially launched. Also this year, JD.com invested US$50 million in Tuniu. In 2015, it invested US$250 million in cash and resources and operational support worth US$108 million. With this, Tuniu has obtained the five-year commission-free exclusive right to operate JD.com’s travel and vacation channel website and mobile terminal.

However, Tuniu’s development has gone from bad to worse, recording losses for six consecutive years. In 2019, it achieved revenue of 2.281 billion yuan, a year-on-year increase of 1.83%; net profit attributable to shareholders of listed companies was -773 million yuan, A year-on-year decrease of 272.04%.

According to JD.com’s latest 20-F filing submitted to the U.S. SEC, as of the end of 2019, JD.com held approximately 21.2% of Tuniu’s shares. Based on Tuniu’s market value of 94.73 million yuan on April 25, JD.com The equity value is only 20.08 million yuan.

An unnamed industry analyst told Times Finance that after joining Caesars Travel, the future cooperation between JD.com and Tuniu may weaken. He told Times Finance that Caesar Travel overlaps to a certain extent with some of Tuniu’s group tours and outbound travel businesses. After the introduction of Caesar, Caesar’s tourism resources can provide new support and supplements to JD.com in a short period of time.

Regarding JD.com’s current cooperation with Tuniu and the direction of future cooperation, Times Finance asked JD.com for information. As of press time, no reply has been received.

In addition to investing in Tuniu, JD.com has accelerated its pace in the tourism industry since last year.

In February 2019, JD.com acquired 100% equity of Beijing Jade Palace Hotel for 2.7 billion. The latter mainly provides accommodation, food sales, office rental, conference services, property management, ticket agency and other services ; In April 2019, JD.com established Beijing JD Yunhe Travel Agency Co., Ltd., whose business scope covers travel consultation, inbound and domestic tourism businesses.

Chen Liteng, a life service e-commerce analyst at the Online Economics E-Commerce Research Center, told Times Finance that external investment is not ideal, and coupled with JD.com’s long-standing business philosophy, self-operation may be more in line with JD.com’s style. "At present, some of the air tickets and hotel products of JD Travel Channel have been self-operated, and travel agencies have also been established. The above may be seen as a signal for JD to strengthen self-operated tourism."

However, at present, domestic online travel The market has been divided by OTA platforms such as Ctrip, Tongcheng, Meituan, Mafengwo, and Fliggy. According to the "2019 China Online Outbound Travel Industry Research Report" released by iResearch, China's online outbound travel market was highly concentrated in 2018, with CR5 reaching 80.2%, and the industry's leading effect was obvious.

How many opportunities are left for JD.com in the market?

Han Mengying pointed out that JD.com still has many advantages in mid-to-high-end tourism, and its users have very strong spending power. With the introduction of a travel group like Caesar Travel that focuses on outbound travel, user portraits will exist The large-scale overlap and large-scale transactions brought about by outbound travel will also push up JD.com's GMV.

In Chen Liteng’s view, under the influence of the epidemic, the tourism industry has suffered a serious impact. JD.com’s investment this time is just at the stage when the tourism industry is gradually recovering, or it is a good opportunity to enter. It also lays the foundation for JD.com’s self-operated tourism business to a certain extent.