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CTEH INC. to raise a maximum of approximately HK$127.5million by way of Share Offer (subject to Over-allotment Option)

June 18, 2018 Financial No Comments Email Email

CTEH INC. (“CTEH” or the “Company”, together with its subsidiaries, the “Group”), a leading air ticket consolidator and travel business process management service provider in Canada, announces the details of its plan to list on the Main Board of The Stock Exchange for Hong Kong Limited(“SEHK”) today.

A total of 300,000,000 shares will be offered under the Global Offering, of which 270,000,000 Shares, or 90%, subject to adjustment and the Over-allotment Option, will be offered by way of International Offering while the remaining 10%, or 30,000,000 Shares, subject to adjustment, will be offered under the Hong Kong Public Offering. The Offer Price per Offer Share is expected to be not less than HK$0.335 and not more than HK$0.425 (subject to a downward offer price adjustment). The Public Offer will commence on 15 June 2018 (Friday) and close at 12:00 noon on 21 June 2018 (Thursday). The allotment result is expected to be announced on 27 June 2018 (Wednesday). Dealings in CTEH’s shares on the Main Board of the SEHK are expected to commence at 9:00 a.m. on 28 June 2018 (Thursday).

The Company has entered into cornerstone investment agreements with WWPKG Holdings Company Limited (“WWPKG”) and Mr. Duncan Chiu. WWPKG, is a travel company that is listed on GEM of the SEHK. Its major business includes the provision of outbound package tours with particular focus on Japan bound tours under the brand “縱橫遊”. Mr. Duncan Chiu, Managing Director of Radiant Venture Capital, and a director of several listed companies in Hong Kong, has extensive experience in investment and mergers and acquisitions. The cornerstone investors have each agreed to subscribe for approximately HK$10.0 million equivalent of shares at the Offer Price with an aggregate amount of approximately HK$20.0 million. Based on the mid-point of the Offer Price, the total number of shares to be subscribed by the Cornerstone Investors will represent approximately 17.5% of the Offer Shares, assuming that the Over-allotment Option is not exercised.

Assuming an Offer Price of HK$0.38 per Share (being the midpoint of the Offer Price range), the aggregated net proceeds from the Share Offer, after deducting related expenses, will be approximately HK$55.7 million.

CTEH intends to use these net proceeds for the following purposes: 1) approximately 27.0% or HK$15.1 million, will be used for business expansion of air ticket distribution; include developing tailor-made online booking platforms and mobile booking applications in simplified and traditional Chinese for ethnic agencies, setting up customer services for Mandarin and Cantonese speaking travel agents, opening two regional offices and upgrading website; 2) approximately 13.9% or HK$7.7 million, will be used for expanding travel business process management team, which will be used for expanding business development team and purchasing service level management software; 3) approximately 13.5% or HK$7.5 million, will be used for upgrading information technology infrastructure and installing enterprise resource planning system; 4) approximately 2.4% or HK$1.3 million, will be used for increasing publicity across all of existing marketing channels; and 5) approximately 43.2% or HK$24.1 million, will be used for repayment of our bank borrowings after Listing.

Lego Corporate Finance Limited is the Sole Sponsor. Lego Securities Limited is the Sole Global Coordinator and Joint Bookrunner, while Sunwah Kingsway Capital Holdings Limited is a Joint Bookrunner and Joint Lead Manager. China Galaxy International Securities (Hong Kong) Co., Limited, Pacific Foundation Securities Limited, Future land Resources Securities Limited and VMS Securities Limited are the Joint Lead Managers.

Business Overview

CTEH is a leading air ticket consolidator and travel business process management service provider in Canada, founded in 1976 and with more than 40 years of operating history. Its principal businesses include i) travel business process management (mid-office and back-office support services) (ii) air ticket distribution; and (iii) design, develop and sell travel products and services.

The Group is a large and diversified customer base mainly consisting of more than 850 travel agents in Canada and the United States and also individual travellers. The Group has been supplying air tickets since 2003 and providing travel business process management services since 2007 to its largest customer, one of the world’s top online travel agency (OTA), which is listed on the NASDAQ Stock Market and owns and operates leading travel brands featuring the world’s broadest supply portfolio, with more than 590,000 properties in 200 countries, over 500 airlines, packages, rental cars, cruises, destination services and activities. According to its annual report, it recorded revenue of approximately US$10.06 billion in 2017.

According to the CIC Report, the Group ranked top three with a market share of approximately 31.3% in the air ticket consolidation market in Canada, in terms of sales volume of air tickets in 2017, and also ranked top three with a market share of approximately 14.9% in travel business process management market in Canada, in terms of service revenue in 2017.

Travel Business Process Management

CTEH provides travel business process management mainly to travel agencies in North America. It offers a single point of contact for a range of travel business process management services include air ticket transaction processing, customer contact, BSP/ARC settlement and reconciliation, software development and travel licensing, compliance and other administrative matters, according to customers’ requirements and business needs. As of the Latest Practicable Date, it had been providing travel business process management services to 10 travel agents.

Air Ticket Distribution

CTEH operates as an air ticket consolidator to distribute air tickets on behalf of contracted airlines. As of the Latest Practicable Date, it had ticketing authority for more than 150 airlines and private fare deals with around 70 airlines. For the years ended December 31, 2015, 2016 and 2017, it sold approximately 606,000, 861,000 and 949,000 air tickets, respectively, which amounted to approximately HK$3,095.1 million, HK$3,755.0 million and HK$4,018.9 million in terms of gross sales proceeds, respectively.

Travel Products and Services

The Group offers package tours and other travel products and services to travel agents and individual travelers. Other travel products and services mainly include customized tours, flight plus hotel packages, hotel accommodations booking, admission tickets to attractions, car rental, travel insurance and visa application.

As of the Latest Practicable Date, it had developed a comprehensive range of package tours in English, French or Chinese, to more than 200 cities in over 40 countries in Asia, Europe, Middle East, North America and South America.

Competitive Strengths

1)    In-depth technical know-how and information technology capabilities

Through more than 40 years of operating experience, the Group has developed domain expertise in each of business segment and gained a deep understanding of the emerging trends, technologies and best practices in the travel and tourism industry in North America.

The Group has built a solid information technology infrastructure comprising computer hardwares, operating systems, enterprise software application, data management and storage, networking and telecommunication platforms, and system integration services to support daily operations. It also has extensive technical know-how in the travel and tourism industry.

Most of the Group’s travel business process management team are familiar with the mid and back-office travel business processes and well-acquainted with different global distribution system (GDS), ticketing and communication skills for provision of travel business process management services to customers. Its travel technology services team possesses advanced skills and strong capabilities on (i) designing, installing and integrating of real-time interface to sync with different GDSs; and (ii) developing software that supports shopping and booking platforms, data management and payment gateway of travel companies according to their business needs; (iii) website design; and (iv) cloud computing.

During the Track Record Period, its travel technology services team has completed over 30 information technology projects including software upgrade for internal use and software development for certain customers, under the supervision of the director of travel technology services team, Mr. Jason Kam On Ho, who has over 30 years of experience in technology software engineering and project management.

Taken together, the depth and breadth of its technical know-how and information technology capabilities enable the group to maintain competitive position in the travel and tourism industry by meeting the demands of its customers for speed, flexibility and convergence.

2)    Synergistic business segments address a variety of evolving needs of travel providers, travel companies and travelers

The Group’s business model comprises three distinct but synergistic business segments: air ticket distribution, travel business process management and travel products and services, which is believed to be a key differentiating factor that distinguishes the Group from other traditional travel companies. It is believed that, through developing different business segments, the Group can utilize resources more efficiently and address the evolving needs of various participants in the travel and tourism industry value chain.

3)    Well-established business relationships with travel providers and travel companies

The Group has established long-term business relationships with both travel providers and travelcompanies, some of whom it has been serving for over 30 years. It is believed that, such relationshipscannot be easily replicated by others, and will continue to differentiate the Group from its competitors.

The Group’s ability to obtain a wide selection of private fares from top airlines allows it to establish pricing advantage. It has maintained strong and long-standing relationships with several major airlines, including top airlines based in Canada, the United States, Hong Kong and China. As of the Latest Practicable Date, the Group has maintained 12 to 37 years of relationships with its five largest suppliers.

The Group has a large and diversified customer base mainly consisting of more than 850 travelcompanies in Canada and the United States and also individual travelers. It is believed, the Group’s well-established relationships with major customers has greatly enhanced the Group’s reputation in the travel and tourism industry, hence increased its ability to attract new customers.

Business Strategies

1)    Increase market share in the respective business segments by expanding customer base

Air Ticket Distribution

The Group intends to build on existing track record and growing reputation to gain additional market share in the air ticket midstream industry in Canada. It will continue to seek for business opportunities to scale operations vertically and horizontally.

The Group plans to expand its business development team to focus on developing ethnic travel agencies and corporate travel agencies in Canada. It plans to first roll out tailormade booking platforms and mobile booking applications in simplified and traditional Chinese and set up customer services for Mandarin and Cantonese speaking travel agents to support the operational needs of new booking platforms.

It will also explore business cooperation opportunities with existing and new travel management companies. The Group plans to expand geographically in Canada and is considering to set up two additional regional offices in Winnipeg and Halifax to cover the provinces of Manitoba and Nova Scotia respectively, as well as to employ qualified personnel to carry out business development activities to attract new customers including but not limited to ethnic travel agencies and travel management companies.

In addition, to attract more individual travelers, it plans to upgrade its existing website to include online air ticket booking system and develop mobile booking application. It is believed that the online booking system will not only be a new revenue source but also a potential cost reduction for air ticket distribution to individual travelers.

Travel Business Process Management

The Group plans to hire dedicated business development staff to conduct targeted sales and marketing activities through various marketing channels including actively participating or sponsoring industry trade fairs and exhibitions. It will continue to focus on providing value-added, complex and integrated travel business process management solutions to travel companies in Canada and the United States. In addition, it plans to acquire softwares for service level management for productivity management and measurement. It is believed that, these tools will help the Group to optimize internal resources, assess the overall efficiency, and enhance competitiveness.

2)    Upgrade information technology system and continue to focus on operational efficiency

The Group plans to continue to focus on operational efficiency through upgrading existing information technology infrastructure including data storage, electronic documentation, cloud based backup storage, communication technology network, computer systems and information security to support the flow, storage, processing and analysis of operating and financial data.

It plans to replace its existing e-ITS system, which includes functions such as ticket sales and invoice, record maintenance, interface control, accounting and management reports, with an advanced enterprise resource planning (“ERP”) system. ERP system is an integrated computer based yield management tool to store, analyze flight data, passenger data and booking pattern, which allows the Group to determine pricing, thereby optimizing profits.

3)    Enhance brand recognition and awareness

The Group will continue to implement marketing initiatives including placing advertisements on both local and national Canadian newspapers and commercials on various television and radio channels, sponsoring events, as well as participating in industry trade conference and organizing travel shows regularly to promote its products and services to potential customers.

In particular, with the increasing use of Internet for travel shopping and booking and in order to correspond with the launch of CTEH’s online booking system, the Group will boost digital marketing efforts. Through advertising on social media and search engine marketing, it aims to increase online channel presence to reach out to a wider spectrum of individual travelers.

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