CTG DUTY-FREE(601888) -·2025-01-17 02:53Investment Rating - The report assigns a Neutral rating to China Tourism Group Duty Free Corporation (China Duty Free) with a 12-month target price of RMB 71.50 [4][5] Core Views - China Duty Free expects stable sales in Hainan and positive year-on-year growth in airport sales by 2025 [1] - The company is adopting a "small batch + high frequency" procurement strategy to maintain normal inventory levels [1] - If more South Korean duty-free operators cease cooperation with Chinese daigou (shopping agents), it could lead to consumption repatriation, benefiting Chinese duty-free operators [1] - The current Hainan duty-free shopping policy, including the RMB 100,000 annual shopping quota per person, is expected to remain unchanged for the next 3-5 years [2] - The company is increasing its market share in Hainan, and consumption vouchers are seen as an effective way to boost duty-free sales, with every RMB 1 voucher generating RMB 16-17 in incremental revenue [2] - Chanel is considering entering Haitang Bay, which could further enhance the region's appeal [2] - Airport duty-free sales are expected to grow positively in 2025, driven by the recovery of outbound travel and the boom in inbound tourism, though challenges remain, including competition from cross-border e-commerce platforms and slow introduction of luxury brands [3] Financial Projections - The report forecasts revenue growth for China Duty Free, with revenues expected to increase from RMB 71.608 billion in 2024E to RMB 113.538 billion in 2028E [9] - Net profit is projected to rise from RMB 6.781 billion in 2024E to RMB 10.873 billion in 2028E [9] - Earnings per share (EPS) is expected to grow from RMB 3.28 in 2024E to RMB 5.26 in 2028E [9] - The EBIT margin is forecasted to remain stable at around 12.4% to 12.7% from 2024E to 2028E [9] - ROIC (EBIT) is projected to increase from 33.5% in 2024E to 45.2% in 2028E [9] Valuation and Market Data - The target price of RMB 71.50 is based on a DCF valuation with a WACC of 9.4%, implying a 22x/19x 2024/25E PE ratio [4] - The stock price as of January 15, 2025, was RMB 61.29, with a 52-week range of RMB 53.76 to RMB 89.68 [5] - The company has a market capitalization of RMB 127 billion (USD 17.3 billion) and a free float of 25% [5] - The average daily trading volume is 21,368 thousand shares, with an average daily turnover of RMB 1.493 billion [5] Industry and Competitive Landscape - The duty-free industry faces structural challenges, including competition from cross-border e-commerce platforms, slow introduction of luxury brands, and the dilution effect of downtown duty-free stores [3] - The company is negotiating airport pickup point fees, and airports may become shareholders in downtown duty-free stores [3] - The policy prohibiting individual shareholders in duty-free entities remains unresolved, with individuals still holding over 30% of RiRi shares [1]