Travel-related IPOs were all the rage at one time not long ago, as a new generation of hotel operators and air and train ticket sellers cashed in on a new appetite for tourism from China's emerging middle class. But the group has gone largely silent lately in terms of new listings, hobbled by the plunge in their business during the three years of the pandemic.

Now, Huoli Group Holdings Ltd. is finally breaking that silence with its filing for an IPO in Hong Kong at the end of last month. The listing would be one of the first by a major online travel agent since larger rival Tongcheng (0780.HK) raised $180 million in its 2018 listing in Hong Kong. Huoli is likely to raise less than that, based on the company's latest valuation of about 2 billion yuan ($282 million) during its most recent fundraising in August, and the assumption that it will float about a quarter of its shares.

A quarter of its latest valuation would translate to about $70 million in fundraising for the IPO, and the company's hiring of mid-sized investment banks CMS International and CMBC Capital as underwriters also suggests a mid-sized deal.

Investor appetite for Huoli shares will depend on whether China can sustain its post-pandemic domestic travel boom. That boom has continued to defy a slowdown in other areas of consumer spending, with Chinese travelers still willing to spend strongly on "revenge travel" post-pandemic. But the boom is showing recent signs of slowing, as Chinese consumers grow increasingly cautious. That means timing will be critical behind the success of Huoli's listing.

At the depths of the pandemic, when domestic travel was effectively halted, Huoli lost 357.5 million yuan on revenue of 343.6 million yuan in 2021. Revenue fell further to 280.1 million yuan in 2022, before revenge travel helped the figure rebound almost 80% to 501.6 million yuan in 2023. Similarly, the company bounced back from a net loss of 758,000 yuan in 2022, to a profit of 59.3 million yuan in 2023.

Revenue growth slowed in the first half of this year, but the figure still rose by 22.6% to 281.4 million yuan, while its net profit fell slightly to 31.7 million yuan. Revenue from transportation services, its biggest revenue source at about three-quarters of its total, increased by a similar 22.2% over the period from 168.4 million yuan to 205.8 million yuan.

The company's gross margin has also bounced back from 49.8% in 2021 to 58.6% in the first half of this year. Its registered user base has rebounded strongly as well, with its number of paying users more than doubling from 4.3 million in 2022 to 8.8 million last year.

Huoli cited industry data saying it was China's fifth largest third-party seller of online air tickets in 2023, with 1.5% of the 1.2 trillion yuan market. It was the third-largest for online train ticket bookings with 2.2% of the 552.8 billion yuan market.

Sector rebound

Huoli certainly wasn't the only one to benefit from revenge travel. Tongcheng also saw its business rebound, with revenue up 48.8% to 8.1 billion yuan and profit up 12.3% to 829.5 million yuan in the first half of the year. And Fosun Tourism (1992.HK), which owns Club Med, saw its revenue grow 39% in the first half of this year, as the company returned to the black by reporting a 8.9 billion yuan profit.

The latest reading on the pulse of China's travel market came during the weeklong Oct. 1 "golden week" holiday. Those numbers showed travel was still growing, though at just single-digit rates. The holiday saw the number of domestic trips rise 5.9% year-on-year to 765 million, according to the Ministry of Culture and Tourism. 

The slowing rebound may be happening more quickly at the high-end of the travel market, with international hotel chains reporting recent declines in their revenue per available room (revpar), the most widely watched industry metric, in their China operations.

While the domestic tourism rebound is slowing, a return to outbound tourism continues to take off as international flights to and from China slowly return to pre-pandemic levels. Outbound tourists on online travel agency Tuniu ( TOUR ) were up 190% over the May 1 Labor Day holiday.

Huoli is one of China's top three one-stop sources for travel information and bookings, although it is a distant third to industry leader Trip.com ( TCOM ) and Tongcheng, which have much larger market values of $45 billion and $5.5 billion, respectively. Like its peers, Huoli offers integrated travel information and booking services.

In Huoli's case, these cover 5,000 airports in 220 countries, 3,000 domestic rail stations and 400,000 hotels. Its brand is known best through its two apps, Flight Master, launched in 2009, and Train Master, launched in 2012. It also supplies travel data and technology services for some 150 enterprise customers, and offers some ride hailing services.

Transportation services accounted for 73.1% of its revenues in the first half of this year, while corporate travel managing services accounted for 13.6% and online ride hailing for 1.1%. Despite its presence in the hotel booking area, its accommodation reservations business is still relatively small at just 1.7% of its revenue in the latest reporting period.

Huoli has raised 1.15 billion yuan in various financing rounds between April 2016 and August 2024, but has now used up most of those proceeds, according to the listing document. The company previously listed on China's National Equities and Quotations (NEEQ) market in 2017, but withdrew three years later due to thin trading.

The company also made a preliminary filing to list on Shanghai's Nasdaq-style STAR Market in May 2019 before deciding not to pursue that option. The decision to pursue a Hong Kong listing instead may have been influenced by its plans to establish an Asian regional business in Hong Kong, which would require foreign currency. Such a listing would also raise the company's profile among travelers outside the Mainland travel market who would be the primary customers of such an offshore hub.

All of Huoli's revenues currently come from domestic sources, but it plans to develop global tourism products from the new Hong Kong center, Zhou Menghao, Huoli's director of marketing and public relations said in April.

Huoli is undoubtedly hoping to ride the recent rally for Chinese stocks in Hong Kong following China's monetary "bazooka" of economic stimulus measures announced in September. That development lit a fire under the benchmark Hang Seng Index, which has managed to maintain much of the gains since then on belief that China is taking more aggressive measures to jumpstart its slowing economy. Several companies to list during that period have also done well, which could play to Huoli's benefit if it can quickly move through the IPO process.