CKH HOLDINGS(HK:00001) Sou Hu Cai Jing·2025-12-01 01:55Core Viewpoint - The listing plan of Watsons Group, a retail giant under CK Hutchison Holdings, is a strategic move to address cash flow pressures and enable independent growth, with a target to raise $2 billion through a dual listing in Hong Kong and the UK in 2026 [1][2][3]. Financial Context - As of the end of 2024, CK Hutchison's total debt reached HKD 259.06 billion, while cash and liquid investments were only HKD 129.44 billion, resulting in a debt coverage ratio of less than 50% [2]. - The planned fundraising of HKD 15.5 billion from Watsons' listing could increase the group's cash reserves by 12% and improve the debt coverage ratio to 56%, alleviating short-term repayment pressures [2][4]. Strategic Asset Management - The listing of Watsons is part of CK Hutchison's ongoing strategy to divest non-core assets, having previously sold parts of its electricity and telecommunications assets for over HKD 30 billion [4]. - Watsons, as a high-quality asset with independent financing capabilities, is expected to provide ongoing financial support post-listing, contrasting with the less liquid infrastructure assets [4]. Market Position and Valuation - Watsons generated HKD 186 billion in revenue in 2024, accounting for 23% of CK Hutchison's total revenue, but its valuation has been undervalued within the diversified business structure [4]. - The potential market valuation for Watsons post-listing could rise from HKD 120 billion to over HKD 180 billion, significantly enhancing CK Hutchison's market capitalization [4]. Operational Challenges - Watsons faces significant operational challenges, including a decline in store numbers in mainland China, where it closed 628 stores from 2020 to mid-2025 [5][6]. - The brand's product offerings have not kept pace with changing consumer preferences, particularly among younger demographics, leading to a loss of market share [6][8]. Expansion and Transformation - Despite challenges in China, Watsons is expanding in Europe and Southeast Asia, with a net increase of 285 stores in Europe and the opening of its 8,000th store in Manila [9]. - The company is investing over HKD 8 billion in digital transformation and store upgrades to enhance its online and offline integration strategy [9][10]. Dual Listing Strategy - The dual listing in Hong Kong and London is designed to leverage the strengths of both markets, with Hong Kong offering higher valuations and better understanding of Asian retail dynamics [11][12]. - The London listing aims to enhance brand visibility in Europe, where Watsons has a significant market presence, while minimizing immediate fundraising pressures through a "introduction listing" approach [14][15]. Industry Trends - The challenges faced by Watsons reflect broader trends in the beauty retail sector, where traditional channels are under pressure from e-commerce growth, with offline sales dropping from 72% to 58% of the market share from 2019 to 2024 [16]. - Competitors like Mannings and Sa Sa are also experiencing similar difficulties, prompting a shift towards digital transformation and new business models [17]. Future Outlook - The beauty retail industry is expected to undergo consolidation, with market share increasingly concentrated among capital-strong players like Watsons and Sephora [18]. - Watsons plans to utilize its listing proceeds to establish a fund for investing in emerging beauty brands, enhancing its competitive edge through innovation [18][22].