Investment Rating - The report initiates coverage with a "Cautious Recommendation" rating for the company [6][8]. Core Views - The company is positioned as a core beneficiary of the recovery in international demand, particularly due to the expansion of foreign personnel exchanges. Despite short-term pressures on duty-free sales, the international passenger volume at Pudong Airport remains a significant channel for duty-free businesses in the medium to long term [6]. - The company reported a revenue of 12.37 billion yuan for 2024, a year-on-year increase of 12%, and a net profit attributable to shareholders of 1.93 billion yuan, up 107% year-on-year [3][7]. - The report highlights the resilience of non-aeronautical businesses, with advertising and logistics revenues benefiting from the recovery in passenger traffic [6]. Summary by Sections Financial Performance - In 2024, the company achieved a revenue of 12.37 billion yuan, with a net profit of 1.93 billion yuan, reflecting a significant year-on-year growth of 107%. The first quarter of 2025 saw a revenue of 3.17 billion yuan, up 4.7% year-on-year, and a net profit of 520 million yuan, up 35% year-on-year [3][4][7]. - The company’s aeronautical revenue increased by 27% year-on-year, driven by a 29% increase in passenger throughput and a 15% increase in aircraft movements [4]. Revenue Drivers - The recovery of international passenger traffic to over 80% of 2019 levels has led to an increase in unit revenue, with international passenger traffic at 84% of 2019 levels [4]. - Duty-free revenue declined by 32% year-on-year due to a new agreement that shifted from a commission-based model to a guaranteed rent model, impacting profitability [5]. Future Projections - The company forecasts net profits of 2.15 billion yuan, 2.56 billion yuan, and 2.93 billion yuan for 2025, 2026, and 2027, respectively, with corresponding PE ratios of 37, 31, and 27 [6][7]. - The report anticipates that the impact of duty-free revenue pressures will gradually diminish as international passenger volumes recover and consumer spending rebounds [5].

Core Viewpoint - During the "May Day" holiday, China Duty Free Group (CDFG) is launching new duty-free shopping experiences in Hainan, integrating cultural tourism with shopping to enhance consumer engagement and drive sales [2][4]. Group 1: New Shopping Experiences - CDFG is creating immersive shopping experiences by combining duty-free shopping with cultural tourism, featuring over a thousand brands and various activities [2]. - The Haikou International Duty-Free City is introducing the first national style aesthetic space, "CDFG Enjoyment Garden," with interactive points and cultural performances [2][3]. Group 2: Promotional Activities - CDFG's six stores in Hainan are offering extensive promotional activities, including five times the points on selected brands, discounts on beauty products, and exclusive limited-edition items [4]. - Special events such as the "Main Character Night" by Estée Lauder and outdoor sports street openings are planned to attract consumers [3]. Group 3: Consumer-Centric Services - CDFG is enhancing consumer convenience by providing services like luggage storage, wheelchair rentals, and an electronic navigation system to assist travelers in finding stores easily [4]. - Membership benefits include gift upgrades, birthday vouchers, and exclusive VIP activities to improve the overall shopping experience [4].

Core Viewpoint - The overall performance of China Duty Free Group (CDFG) continues to decline, with revenue and profit both showing significant drops, indicating ongoing challenges in the market [7][8]. Revenue Analysis - In Q4 2024, CDFG reported revenue of 135 billion RMB, a year-on-year decline of 19.5%, reflecting a consistent downward trend without signs of recovery [11][13]. - The overall sales in Hainan's duty-free market decreased by 21%, but CDFG's revenue decline did not show improvement, suggesting a potential loss of market share [11][13]. - The decline in taxable sales revenue (-26%) is significantly higher than the decline in duty-free sales revenue (-16%), indicating that taxable sales remain a major factor in the overall revenue downturn [2][16]. Profitability Metrics - CDFG's gross profit for Q4 was 38 billion RMB, with a gross margin dropping to 28.5%, marking a continuous decline over three consecutive quarters [3][18]. - The gross margin for taxable sales plummeted from 17.4% to 8.9%, highlighting the need for adjustments in this segment to signal a potential turnaround [3][20]. - The company reported a net profit of only 5.5 billion RMB for the quarter, down from 6.6 billion RMB in the previous quarter, which is insufficient for a company with a market capitalization of over 1 trillion RMB [5][31]. Marketing and Operational Expenses - Marketing expenses remained stable at 22.7 billion RMB for the quarter, with a slight reduction in marketing expense ratio to 16.9% [4][22]. - Management expenses increased to 5.9 billion RMB, indicating efforts to control costs, but the reduction was not sufficient to offset revenue declines, leading to a rise in management expense ratio [4][27]. Future Outlook - The recovery of airport channels has been noted, with significant growth in duty-free sales at Beijing and Shanghai airports, but this is not enough to compensate for the larger decline in Hainan's duty-free sales [2][16]. - The market expects a profit of around 60 billion RMB for 2025, suggesting that current valuations are based on optimistic recovery scenarios, which may not materialize [8][29].