China National Travel Service (HK) Group will merge with China International Travel Services Group (CITS) in a multibillion yuan deal that will give birth to the country’s largest tourism conglomerate, but analysts warn the consolidation won’t pay off anytime soon. The state-owned travel industry powerhouse, known as HKCTS, saw shares of its Hong Kong-listed arm jump 7.42 per cent on Tuesday, the most in more than seven months, on speculation the transaction, riding on Beijing’s state-owned enterprise(SOE) reform, will bolster its core business. “They still face intense competition from internet giants such as Alibaba and Tencent, which are also utilising their online resources to beef up their tourism businesses,”said Bocom International analyst Alfred Lau. The announcement came after China’s state asset supervisor on Monday gave the green light to a restructuring proposal which would see Shanghai-listed CITS become a wholly-owned subsidiary of HKCTS. Joseph Tung Yao-chung, executive director with the Travel Industry Council, said he expects the two companies to continue operating their travel agency businesses independently in Hong Kong with separate brand names and products. HKCTS, whose total assets are estimated to be about 120 billion yuan (HK$139 billion) after the merger, is one of four Hong Kong-based corporate giants overseen by the State Council, with the other three being China Merchants Group, China Everbright Group and China Resources. The reorganisation follows a wave of mergers and acquisitions of major state-owned firms as part of nationwide SOE reform during the last two years, which saw the merger of train makers China CNR and CSR, as well as shipping behemoths Cosco and China Shipping. “The announcement was released after President Xi Jinping earlier this month called on SOEs to become ‘bigger and stronger’, while HKCTS had spun off its struggling steel business last year to pave the way for a restructuring,”said Zhao Huanyan, Shanghai-based chief knowledge officer with Hotelsolution Consulting. “The merger could see the two former rival firms consolidate their resources in many areas and eliminate competition. HKCTS will [also] benefit from CITS’s duty-free business, which enjoys a high profit margin,” Zhao added. Beijing-based CITS is the parent of China Duty Free Group, which runs the world’s biggest duty-free shopping mall in southern China’s Sanya city. There isn’t going to be a very big change immediately and the proposed consolidation isn’t easy to carry out either Alfred Lau, Bocom International However, experts cautioned it would not be easy for the benefits of the deal – largely struck in response to the government’s policy objectives – to materialise anytime soon as potential management revamps at the two SOEs will take time because their subsidiaries were listed in two different markets. “There isn’t going to be a very big change immediately and the proposed consolidation isn’t easy to carry out either,”said Bocom’s Lau. “They still have to go head to head with new players such as Alibaba and Tencent, who can take advantage of online platforms like Taobao in offering travel products.” Zhao believes it may take two years for the merger to reap returns due to the need for a range of asset revamps. Competition has intensified in China’s booming tourism sector, which has undergone industry-wide consolidation that saw Baidu-backed online travel agent Ctrip enter into a share-swap deal this year with rival Qunar. The Hong Kong-listed subsidiary of HKCTS registered a 22 per cent drop in net profits in 2015 as a result of dwindling Chinese tourist numbers in Hong Kong. Alibaba is owner of the South China Morning Post.