CTG DUTY-FREE(601888)2024-10-21 00:17Investment Rating - The report assigns a "Buy" rating for China Tourism Group Duty Free Corp with a target price of Rmb81.000, indicating an expected share price return of 17.3% and an expected total return of 19.5% [1][11]. Core Insights - The preliminary results for 9M24 show a revenue drop of 15% year-on-year to Rmb43 billion and a net profit decline of 25% year-on-year to Rmb3.9 billion. In 3Q24, revenue decreased by 22% year-on-year to Rmb11.7 billion, with net profit down by 53% year-on-year to Rmb632 million [3][4]. - The decline in performance is attributed to weak sales in the Hainan duty-free market, which saw a 34% year-on-year drop in sales during July and August 2024. However, there was a significant rebound in airport duty-free sales, with Beijing airports reporting over 140% year-on-year growth in 9M24 [3][4]. - The report anticipates that weak consumer sentiment will continue to impact sales trends into 4Q24 [3]. Summary by Sections Financial Performance - In 3Q24, total revenue was Rmb11.7 billion, a 22% decline year-on-year. The net profit margin fell to 5.4%, with operating profit dropping by 42% year-on-year [3][8]. - The core business gross margin improved by 1.09 percentage points year-on-year to 32.6%, although it was slightly lower than the 32.9% in the first half of 2024 [3][8]. Hainan Duty-Free Market - Hainan duty-free sales during the National Day Golden Week totaled Rmb785 million, with average daily sales down 33% year-on-year to Rmb112 million. The decline was primarily due to a 26% drop in the number of buyers [4][8]. - The report suggests that the Hainan duty-free market will remain soft in the short term, reflecting ongoing consumer sentiment challenges [4][8]. Valuation - The report utilizes a DCF-based valuation approach with a target price of Rmb81, based on a WACC of 11.0% and a terminal growth rate of 4% [11].