Dongxing Securities·2024-09-03 06:16Investment Rating - The report maintains a "Recommended" rating for China Duty Free Group Co., Ltd. (601888.SH) [1][7] Core Views - The company's performance is under pressure in the short term due to weak demand in the duty-free sales market, particularly in offshore duty-free shopping, while there is potential for recovery in port channels and expansion of city stores [1][7] - The domestic tourism market is showing a steady recovery, with a 14.3% year-on-year increase in domestic tourist numbers and a 19% increase in spending, but the appeal of offshore duty-free shopping has declined, leading to a 29.9% drop in monitored offshore duty-free shopping amounts [5][6] - The company is expected to benefit from the implementation of new city duty-free policies starting October 1, 2024, which will enhance its competitive position in the market [6][7] Summary by Sections Company Overview - China Duty Free Group Co., Ltd. was established on March 28, 2008, and has become the largest travel retail operator globally, focusing on providing high-quality duty-free and taxable goods to domestic and international travelers [2] Financial Performance - In the first half of 2024, the company achieved revenue of 31.265 billion yuan, a year-on-year decrease of 12.81%, and a net profit attributable to shareholders of 3.283 billion yuan, down 15.07% [5] - The second quarter of 2024 saw revenue of 12.458 billion yuan, a decline of 17.44%, and a net profit of 976 million yuan, down 37.6% [5] Market Dynamics - The offshore duty-free business is experiencing sluggish growth, with a significant drop in consumer purchasing intent, leading to a decrease in sales from Sanya's city duty-free stores [5][6] - Port duty-free channels are recovering rapidly, with a 70.9% year-on-year increase in checked-in and out personnel, although recovery is still below pre-pandemic levels [5][6] Profitability and Cost Management - The company has improved its gross margin to 33.53%, up 2.92 percentage points year-on-year, through product structure optimization and discount management [6] - Sales expense ratio increased by 2.91 percentage points to 14.83%, while net profit margin slightly rose to 11.67% [6] Future Outlook - The introduction of city duty-free policies is expected to expand the consumer market, with the company positioned to benefit from this change [6][7] - The company has introduced approximately 50 new brands in Hainan, enhancing its appeal to consumers [6]