Wanda In Leisure Drive With Travel Buy
Wanda Group is already one of China’s leading commercial property owners, and now it’s taking aim at the fast-growing travel sector with word that it’s purchased a major travel agency in affluent Zhejiang province. There’s no financial detail on the deal, but the purchase should help to bolster Wanda’s position that has already made it China’s leading travel company just 2 years after its formation. The group could ultimately become one of China’s leading integrated travel and leisure companies if it eventually lists, providing an attractive alternative to the crowded field of publicly listed firms like online travel agent Ctrip (Nasdaq: CTRP) and leading hotel operator Home Inns (Nasdaq: HMIN).
As a private company, Wanda doesn’t give too much detail on its leisure business unit that was formally established just a year ago. The unit probably consists mostly of its hotel business, which includes properties in its mainstay shopping malls throughout China. The company has previously said it plans to export its hotel brand in a major drive into overseas property markets. Founder Wang Jianlin also said last year he has $5 billion to invest in overseas M&A, which would probably include deals in the travel sector.
This latest deal would see Wanda expand its fledgling travel agency business with its purchase of the Zhejiang-based agency operated by Shanghai conglomerate Everbright
Group. (Chinese article) The deal would see Wanda’s travel arm buy 70 percent of the Everbright unit, whose name would become Zhejiang Wanda Travel Group.
The Zhejiang company is 11 years old, and consists of 9 different operating units. The company has a website, but I suspect that the big majority of its business comes from traditional brick-and-mortar travel agencies. That would contrast with more high-tech companies like Ctrip and Qunar (Nasdaq: QUNR), which derive a big portion of their business from people who book hotels and air tickets over their PCs and smartphones.
According to the reports, Wanda’s own travel unit had 25.5 billion yuan ($4.1 billion) in revenue last year, and expects the figure to reach 40 billion by 2016. That’s already nearly 5 times more than Ctrip, the leading publicly listed travel agent, whose revenue last year rose 30 percent to reach 5.4 billion yuan. But as I’ve said above, I suspect that much of Wanda’s revenue comes from the hotel business that generates lots of cash but also has much higher costs than the higher-margin travel agency business.
This purchase is likely to be the first in a series of similar acquisitions as Wanda moves aggressively into the lucrative but increasingly competitive space for business and leisure travel services. We could even see it make a bid for some of the many smaller venture-funded companies that have appeared in recent years, with names like Tongcheng and recently-listed Tuniu (Nasdaq: TOUR) as potential acquisition targets.
All that said, the bigger questions become: What’s the end game in Wanda’s travel build-up, and what does the challenge mean for companies like Ctrip? In answer to the first question, Wanda is likely to try and build a major travel company that includes both hotels and travel agency services, with an aim for an eventual listing either in China or Hong Kong. Wang Jianlin has previously said he wants to pursue such listings, and media reported last month the company was eying a $5 billion Hong Kong listing for its core shopping mall division. (previous post)
In terms of the second question, the emerging company could pose a major challenge to high-tech service providers like Ctrip and Qunar. That’s because Wang has also been very clear that he wants to diversify into the Internet, and in August his company announced a new e-commerce joint venture with leading search engine Baidu (Nasdaq: BIDU) and social networking giant Tencent (HKEx: 700). We’ll have to wait and see what Wanda’s next move is on the travel front to know what direction it plans to take, but I expect we’ll see some major acquisitions and other big new initiatives in the months ahead.
Bottom line: Wanda’s purchase of a Zhejiang travel agent could mark the start of a buying binge in the travel space, which could ultimately end with a Hong Kong or China IPO for its travel unit.
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