Company Profile

Founded in Nanjing in 1998, China United Travel Co., Ltd. (CUTC) was listed on the Shanghai Stock Exchange in September 2000. The Company had identified the main business of hot spring and leisure travel in 2006. By phasing out some non-hot spring assets, it is presently mainly engaged in hot spring resorts and high-end clubs, and forms two core brands, that is, "Easpring" and "Club China Chic & Resorts". Tangshan Easpring Hot Spring Resort run by the Company is a domestically renowned hot spring resort and leisure scenic spot.

The profitability of the Company's main businesses is poor. Worse still, in recent years, the growth of hot spring business is gradually plagued by no room for growth. Also, affected by the policy of restricting consumption by public funds, the business of high-end clubs is also subject to immense pressure. Losses were registered in 4 out of the past 13 fiscal years. The Company recorded the largest loss of RMB166 million due to reorganisation and provision of impairment of creditor's rights and investment impairment in 2014. However, the Company succeeded in turning from loss to gain and achieved profits of RMB12.7 million in 2015.

Controlling Shareholder Changed, Business Portfolio Restructuring Initiated

In 2014, the Company completed the change of control through the sale of majority shareholders` equity and private placement. And its controlling shareholder changed from CITS Group Corporation to Lead Holding Group who held 31.4% equities in the Company. Major industries of Lead Holding Group cover diversified fields such as real estate, finance and culture media. The future development strategic positioning of CUTC is reconstructed from the original single tourism business into multi-driven businesses including culture, sports, leisure and tourism.

We believe that the Company's clear control and introduction of new management will help improve its governance structure and enhance operational efficiency, while the strategic transformation new businesses will unlock the door for its future growth.

Investment Thesis

Projects in Infancy, No Rating Temporarily

In terms of the sports industry, the Company won the right to develop the 13th National Winter Games of the People's Republic of China, and arranged the layout of sports industry by investing Muay Thai project, setting up industry mergers and acquisitions investment funds and investing in new sports companies like Yingbo Xuncai and Show1. Currently, the China's sports industry is in its infancy, and we expect the market will expand by at least ten tenfold in the future ten years compared with that of 2014. In the cultural industry, the Company entered into a cooperation agreement with the performance and cultural tourism development company Scenery Culture, and invested in the virtual reality hardware and content provider Rongzhi Xunda in a bid to break into the cultural and entertainment industry.

The cultural and sports industry is constantly booming thanks to the national policy support and market focus. We are optimistic about the Company's new strategic focuses and its development prospects are worth looking forward to. However, we temporarily do not rate the Company and keep tracking and paying attention to it given that 1) the Company's assets integration is still under way, and what kind of assets the majority shareholders will inject in the future remains unclear and that 2) the Company is still actively preparing new products and developing new projects, which cannot be quickly reflected on the performance in a short term.. (Closing price as at 4 March 2016)

Financials

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