2025-04-27 03:55Investment Rating - The investment rating for China Tourism Group Duty Free is Equal-weight [8] Core Insights - Hainan's offline duty-free sales showed a year-over-year decline of 5% in March 2025, which is an improvement from a 13% decline in the first two months of 2025. The average daily sales were RMB 94 million [4][11] - The daily shopper count decreased by 26% year-over-year to 17,700, while spending per shopper increased by 28% to RMB 6,500. The growth in average spending per shopper may be attributed to a rise in electronic product sales, although this may not significantly impact margins [4][11] - The macroeconomic outlook remains uncertain, particularly with potential tariff escalations expected to impact the second half of 2025. The performance of Hainan's duty-free market is closely tied to middle-class spending [2][11] - The Hainan government is anticipated to release details regarding the free-trade-zone policy later this year, which could affect duty-free operators [3] Summary by Sections Sales Trends - In March 2025, Hainan's offline duty-free sales were RMB 94 million per day, reflecting a 5% year-over-year decline, which is an improvement from the 13% decline observed in the first two months of 2025. Daily sales were 35% lower than in the first two months of 2025 and 25% lower than the pre-COVID seasonality of March 2015-2019 [4][11] - Assuming that the sales trends from April to December 2025 follow pre-COVID seasonality, the year-over-year decline in sales may remain in the low to mid-single digits for the second and third quarters of 2025. However, a lower year-over-year comparison base in the fourth quarter of 2025 may lead to positive sales growth for the full year [11] Economic Factors - The report highlights that the macroeconomic conditions are critical for Hainan's duty-free market, which is more sensitive to middle-class spending. The uncertainty in the macro outlook and potential tariff impacts are significant considerations for future performance [2][11] - The anticipated free-trade-zone policy from the Hainan government is expected to be released later this year, which could have implications for duty-free operators [3]