Summary of China Tourism Group Duty Free (601888.SS) Conference Call Company Overview - **Company**: China Tourism Group Duty Free (CTGDF) - **Ticker**: 601888.SS - **Market Cap**: Rmb157.4 billion / $22.1 billion - **Enterprise Value**: Rmb132.1 billion / $18.6 billion - **Price Target**: Rmb70.00 - **Current Price**: Rmb76.07 - **Downside**: 8.0% Key Financial Results - **3Q25 Net Profit**: Rmb452 million, down -29% YoY to Rmb412 million excluding one-off items, significantly lower than Rmb1.9 billion in 1Q25 and Rmb657 million in 2Q25, totaling Rmb3 billion for 9M25, which is 72% of the full-year forecast [1][21] - **Revenue Stabilization**: Revenue stabilized with a flattish YoY change in 3Q25 compared to -11% and -8% in 1Q25 and 2Q25 respectively, maintaining a gross margin of ~32% [1][21] - **G&A Expenses**: Higher general and administrative expenses contributed to operating de-leverage [1][21] - **Net Interest Income**: Rmb129 million, down from Rmb212 million in 2Q25 [1] Dividend Declaration - **Interim DPS**: First-time declaration of an interim dividend of Rmb0.25, representing only 16.9% of earnings in 9M25, with management considering this as a potential regular practice due to strong financial position (Rmb28.8 billion net cash at end-3Q25) [2][21] Hainan Duty-Free Sales - **Sales Recovery**: Hainan DFS sales turned positive since September (+3% YoY), continuing into the Golden Week holidays (+14%) [2][18] - **Shopper Metrics**: Per-shopper spending stabilized at Rmb5-6k, but shopper conversion ratio bottomed at 17-18% [18] - **Policy Relaxation**: New DFS policy effective from November 1st, expanding eligible product categories and allowing travelers from other countries to make purchases in Hainan [18][27] Airport and Online Sales - **Airport DFS Revenue**: Estimated to have bounced back by +15% YoY, while online sales faced intense competition, resulting in a -5% YoY decline [19] - **Revenue Breakdown**: Excluding Hainan DFS, airport and online segments generated Rmb6.3 billion in 3Q25, a +2% YoY increase [19] Cost Management and Future Projects - **Cost Control**: Management aims to maintain gross margins at 32-33% through economies of scale and favorable supplier negotiations [19] - **Inventory Management**: Inventory days reduced from 215 to 135, then increased to 193/195 due to product replenishment ahead of peak season [19][20] - **New Project**: Sanya downtown DFS mall phase 3 is on track for launch in FY26E [20] Valuation and Outlook - **Revised EPS Estimates**: FY25E EPS estimates revised down by -12%, with FY26-27E forecasts largely unchanged [21] - **Target Price Adjustment**: 12-month target price raised to Rmb70/HK$61, applying a mid-cycle P/E multiple of 30x [21] - **Neutral Rating**: Maintained due to skepticism about resuming high double-digit growth rates seen in FY20-22 [21] Additional Insights - **Competitive Pricing**: CTGDF remains competitive against cross-border e-commerce and duty-free channels in Japan, Korea, and Hong Kong [18] - **Market Trends**: Improvement in sales trends aligns with broader high-end spending recovery observed in other industries [21]

Summary of Conference Call on China Duty-Free Industry Industry Overview - The conference call discusses the duty-free industry in China, particularly focusing on China Duty Free Group (CDFG) and its performance amid new policies and market conditions [2][3][4]. Key Points and Arguments 1. **Impact of New Duty-Free Policies** The recent implementation of new duty-free policies is expected to significantly enhance conversion rates and drive the expansion of duty-free businesses, especially benefiting pilot stores in Beijing and Shanghai, with rapid growth anticipated in 2026 [2][3]. 2. **Performance of China Duty Free Group (CDFG)** CDFG's profits have declined from approximately 10 billion in previous years to around 4 billion in 2025 due to intensified channel competition, consumer downgrade, and the crackdown on purchasing agents. However, the new policies and the closure of Hainan's offshore market are expected to boost performance, with profits projected to reach between 5 billion to 6 billion in 2026 [2][4][5]. 3. **Benefits to Other Licensed Companies** Other licensed companies such as Zhuhai Duty Free, Wangfujing, and Hainan Airlines Group are also expected to benefit from the new offshore and exit optimization policies. Wangfujing is projected to reduce losses to around 400 million in 2026, while Hainan Airlines Group is anticipated to gain from its affiliate's development in Hainan [2][6]. 4. **Investment Timing** The current period is considered a favorable time for investing in duty-free concept stocks, as valuations are relatively low with noticeable marginal changes. It is recommended to allocate investments in large companies like CDFG for relative returns, especially with potential stock price improvements expected around the Spring Festival [2][7]. 5. **Consumer Impact of Hainan Closure** The closure of Hainan has not resulted in lower consumer goods tax rates but has created price advantages through the offshore duty-free framework. This change has limited consumer benefits but presents significant opportunities for licensed companies, particularly large firms like CDFG [2][8]. 6. **Market Trends and Seasonal Factors** The overall market trend for 2026 is optimistic, with expectations of improving data. However, attention should be paid to potential seasonal weaknesses in data post-Spring Festival, as well as monthly data changes, key time points, and government regulatory movements [2][3][9]. Additional Important Insights - The new policies have notably increased market attention and are expected to enhance the purchasing process for returning travelers, which could lead to a substantial increase in sales at city duty-free stores [3]. - Investors are advised to monitor the performance of smaller companies like Wangfujing and Hainan Airlines Group, assessing their valuations based on specific circumstances [7].

Investment Rating - The report assigns an "Outperform" rating to China Tourism Group Duty Free, indicating an expected relative return exceeding 10% over the next 12-18 months [20][21]. Core Insights - The company reported a marginal improvement in Q3 2025 results, with revenue of RMB 11.71 billion, a year-on-year decline of 0.4%, and a net profit of RMB 452 million, down 28.9% year-on-year [1][7]. - Hainan's offshore duty-free sales showed signs of recovery, with September sales reaching RMB 1.73 billion, marking a 3.4% year-on-year increase, the first positive growth in nearly 18 months [2][8]. - The company has implemented its first interim dividend, distributing RMB 2.5 per 10 shares, totaling RMB 517 million, which is 16.95% of the net profit for the first three quarters [4][11]. Summary by Sections Financial Performance - For Q3 2025, the company achieved a gross profit margin of 32.0%, which remained stable year-on-year, while the net profit margin was 3.86%, down 1.55 percentage points year-on-year [2][9]. - The total revenue for the first three quarters was RMB 39.86 billion, reflecting a 7.3% year-on-year decline, with a net profit of RMB 3.052 billion, down 22.1% year-on-year [1][7]. Market Developments - The company is expanding its operations with new downtown duty-free stores in Shenzhen, Guangzhou, and Chengdu, adopting a dual-track operation model that integrates local culture [3][10]. - Recent policy adjustments in Hainan's offshore duty-free shopping are expected to enhance consumer experience and boost sales, with the number of duty-free shopping categories increasing from 45 to 47 [5]. Strategic Initiatives - The company is focusing on enhancing the integration of duty-free shopping with cultural tourism, creating a composite model that includes experience and social interaction [3][10]. - Ongoing projects, such as the third phase of Sanya International Duty-Free City, are progressing steadily, contributing to the company's long-term growth strategy [3][10].

Core Viewpoint - Guosen Securities has given China Duty Free Group (601888.SH) an "outperform" rating, citing signs of a revenue turning point by Q3 2025 and the initiation of interim dividends [1] Revenue Summary - The Hainan duty-free market is gradually stabilizing, with offline duty-free sales recovering positively, although online competition remains [1] - The company is expected to benefit from favorable policies and proactive measures, enhancing profit expectations [1] Profitability Summary - Excluding disturbances from electronic products, the gross profit margin has shown a year-on-year increase, while the net profit margin attributable to shareholders has been affected by foreign exchange fluctuations [1] - The strong performance during the National Day holiday marks the beginning of the peak season [1]

Investment Rating - The investment rating for the company is "Outperform the Market" [6][17]. Core Views - The company is experiencing a revenue stabilization with a slight decline in Q3 revenue and net profit, but positive trends are emerging due to favorable policies and high-end consumption recovery [1][5]. - The company has initiated a mid-term dividend distribution of 0.25 yuan per share, reflecting a profit distribution rate of approximately 16.95% for the first three quarters [1][10]. - The company is well-positioned to benefit from ongoing policy support in the duty-free sector, particularly in Hainan and airport sales, which are expected to enhance profitability in the upcoming peak season [4][17]. Revenue Summary - Q3 revenue was 11.711 billion yuan, down 0.38% year-on-year, while the net profit attributable to shareholders was 0.452 billion yuan, down 28.94% [1][10]. - For the first three quarters, total revenue reached 39.862 billion yuan, a decrease of 7.34%, and net profit was 3.052 billion yuan, down 22.13% [1][10]. - The Hainan duty-free market is showing signs of stabilization, with a slight decrease in sales but an increase in average spending per customer [2][13]. Profitability Summary - The company's gross margin for Q3 was 32.0%, remaining stable year-on-year, with a potential increase when excluding low-margin electronic products [3][13]. - The net profit margin for Q3 was 3.9%, reflecting a decrease of 1.6 percentage points, influenced by foreign exchange and sales expense factors [3][13]. - The company is expected to benefit from improved operational efficiency and cost management, which may enhance profitability in the future [4][17]. Future Outlook - The National Day holiday performance indicates a positive trend, with sales in Hainan's duty-free sector showing growth in sales amount, shopping numbers, and per capita spending [4][14]. - The company is expanding its product categories and customer base in Hainan, which may lead to increased consumer engagement and sales [4][14]. - The introduction of new policies for city duty-free stores is expected to strengthen the company's position in the domestic market, allowing it to capture new consumer demand [4][14].

Group 1 - The tourism retail sector increased by 4.06% on October 31, with China Duty Free Group leading the gains [1] - The Shanghai Composite Index closed at 3954.79, down 0.81%, while the Shenzhen Component Index closed at 13378.21, down 1.14% [1] - China Duty Free Group's closing price was 76.07, reflecting a 4.06% increase [1] Group 2 - The net inflow of main funds in the tourism retail sector was 31.185 million yuan, while retail investors experienced a net outflow of 30.7518 million yuan [1] - The main fund's net inflow for China Duty Free Group was 31.185 million yuan, accounting for 0.50% of the total [1] - Retail investors' net outflow for China Duty Free Group was 30.7518 million yuan, representing a -0.49% change [1]

Core Viewpoint - Despite a challenging performance in the first three quarters of 2025, China Duty Free Group's stock prices surged due to the announcement of its first interim dividend and favorable new policies in the duty-free sector [2][3][10]. Financial Performance - For the first three quarters of 2025, China Duty Free Group reported revenue of approximately 39.862 billion RMB, a year-on-year decline of 7.34% [4]. - The net profit attributable to shareholders was about 3.052 billion RMB, down 22.13% year-on-year [4]. - In Q3 alone, revenue was 11.711 billion RMB, showing a slight year-on-year decline of 0.38% but a quarter-on-quarter increase of 2.69% [5]. - The net profit for Q3 was 0.452 billion RMB, down 28.94% year-on-year and 31.68% quarter-on-quarter [5]. - Operating cash flow for the first three quarters was 3.388 billion RMB, a significant decrease of 33.62% year-on-year, attributed to reduced sales collections [5]. Market Conditions - The duty-free market has been under pressure due to a slowdown in macroeconomic growth, which has affected consumer spending and the recovery of offshore duty-free sales [6][8]. - In the first eight months of 2025, Hainan's offshore duty-free sales amounted to 20.43 billion RMB, a year-on-year decline of 8.51%, with the number of duty-free shoppers down 24.40% [7]. Policy Developments - On October 30, a new duty-free policy was announced, effective November 1, aimed at enhancing the duty-free shopping experience and expanding the range of products available [3][10]. - The new policy is part of a broader initiative to support the duty-free sector, coinciding with the upcoming full closure of Hainan Free Trade Port on December 18, which is expected to further optimize the tourism retail ecosystem [10][11]. Future Outlook - Analysts believe that the recovery of Hainan's offshore duty-free business will be crucial for future performance [9]. - There is optimism that as inbound and outbound tourism recovers alongside the release of duty-free policy benefits, China Duty Free Group, as an industry leader, may be well-positioned to capture growth opportunities [11].

Investment Rating - The investment rating for the company is "Buy" [7][8] Core Views - The report highlights that the company's revenue for Q3 was 11.711 billion RMB, showing a year-over-year decline of 0.38%, while the net profit attributable to the parent company was 0.452 billion RMB, down 28.9% year-over-year [1] - The company plans to initiate a mid-term dividend, with a total dividend of 0.517 billion RMB for the first nine months of 2025, accounting for 16.95% of the net profit [1] - The report indicates that demand is stabilizing, supported by various stimulus policies in Hainan, leading to a marginal recovery in duty-free sales [1][2] - The company is accelerating its strategic transformation and expanding its boundaries to stimulate demand, with the establishment of city duty-free stores progressing steadily [3][4] Summary by Sections Financial Performance - For Q1-Q3, the company's total revenue was 39.862 billion RMB, a year-over-year decrease of 7.3%, and the net profit attributable to the parent company was 3.052 billion RMB, down 22.1% year-over-year [1] - The gross profit margin for Q3 was 32.0%, remaining stable year-over-year, with sales and management expense ratios at 18.7% and 3.9%, respectively [3] Market Trends - The duty-free sales in Hainan for Q3 2025 reached 5.403 billion RMB, a year-over-year decline of 2.6%, but showed signs of improvement with a positive year-over-year growth of 3.4% in September [2] - The average spending per person increased by 13.6% year-over-year to 5,707 RMB, indicating a significant improvement in consumer spending [2] Strategic Developments - The company opened three city duty-free stores in Shenzhen, Guangzhou, and Chengdu in Q3 2025, with plans for a store in Tianjin by the end of the year [4] - The report emphasizes the potential long-term benefits from the upcoming closure of Hainan's free trade port, expected to attract international brands and enhance the integration of culture, tourism, and shopping [3] Profit Forecast and Valuation - The net profit forecasts for 2025-2027 have been revised down by approximately 21.94%, 20.48%, and 20.53%, respectively, with expected net profits of 3.658 billion RMB, 4.209 billion RMB, and 4.788 billion RMB [5] - The target price for A-shares has been adjusted to 81.20 RMB and for H-shares to 75.84 HKD, reflecting a premium valuation based on comparable companies [5]

Group 1 - China Duty Free Group (01880.HK) saw a stock price increase of over 4%, specifically a rise of 4.12% [2] - The current stock price is reported at 65.75 HKD [2] - The trading volume reached 130 million HKD [2]

Core Viewpoint - China Duty Free Group (中国中免) shares rose over 4% following the announcement of new policies to support duty-free shops, aimed at boosting consumer spending [1] Group 1: Policy Changes - On October 30, the Ministry of Finance and four other departments released a notice to improve duty-free shop policies, effective from November 1 [1] - The notice includes optimizing the management of domestic goods tax refund (exemption) policies and supporting the sales of domestic products in both port exit and city duty-free shops [1] - The initiative encourages duty-free shops to introduce more high-quality products that reflect traditional Chinese culture [1] Group 2: Company Financials - For the first three quarters of 2025, China Duty Free Group reported revenue of 39.862 billion yuan, a year-on-year decrease of 7.34% [1] - The net profit attributable to shareholders was 3.052 billion yuan, down 22.13% year-on-year [1] - The company announced its first interim dividend plan, proposing a cash dividend of 0.25 yuan per share, totaling 517 million yuan, which represents 16.95% of the net profit attributable to shareholders for the same period [1]