Summary of Conference Call Notes Industry Overview - The conference call discusses the duty-free market in Hainan, China, highlighting the growth in customer traffic and sales performance in 2025 compared to previous years [1][2]. Key Points and Arguments Customer Traffic and Sales Performance - Hainan's overall customer traffic increased by approximately 2-3% year-on-year, with Sanya showing over 7% growth and a peak of 15% from November 1 to 4 [2] - Sales in Hainan turned positive starting September 2025, primarily due to a low base from the previous year and strong performance during the National Day holiday [2] - Average transaction value increased by over 30%, driven by sales of electronic products and premium goods, although conversion rates remain negative [1][2] Product Category Performance - Electronic products' share in the duty-free category rose to about 10%, aided by the launch of Huawei phones in the duty-free market and relaxed purchase restrictions [1][3] - Premium goods benefited from economic recovery and promotional activities, while the share of cosmetics declined, though year-on-year growth rates did not significantly drop [4] Impact of New Policies - The new policies in Hainan, which include the addition of pet supplies and musical instruments, have had a limited impact on the duty-free market [5] - The policy allowing island residents to shop multiple times has made purchasing more convenient, but its effects will take time to manifest [5] Border Closure Policy - The border closure policy has not had a substantial impact on Hainan's offshore duty-free business, with existing policies remaining unchanged [6] - Mainstream duty-free product categories are still on the negative list, meaning they do not enjoy zero tariffs, and taxable goods still incur normal customs duties, consumption taxes, and value-added taxes [6] Company-Specific Insights - Nichi's sales have continued to decline, with half-year reports showing a drop from over 8 billion to over 6 billion, primarily due to a contraction in taxable business rather than poor performance in duty-free sales [7] - Nichi is expected to explore new business models, such as online reservations, to address current challenges and seek new growth opportunities [7] Future of Duty-Free Shops - City duty-free shops have seen improved sales since the implementation of new policies on November 1, allowing for pick-up upon return to the country [9] - New product categories, including mobile phones and drones, have been introduced, and the online reservation platform offers an unrestricted shopping experience [9] - The potential for home delivery could significantly expand the reach of these shops, especially in smaller airports [9] Comparison with Korean Duty-Free Model - Chinese city duty-free shops share similarities with the Korean model but have advantages in shopping convenience and product selection [10] - If market conditions allow for home delivery, it could further enhance convenience and mitigate the impact of airport pick-up limitations [10] Company Growth Potential - Zhongmian Company has a clean shareholding structure with limited foreign investment, indicating low downside risk [11] - The company aims for a long-term revenue growth target of 10% annually, with potential revenue reaching 80-100 billion RMB in five years if growth is maintained [11] - The company has significant room for improvement, particularly in its two main duty-free stores in Hainan, which could enhance its operational performance [12] Other Important Insights - The overall market remains heavily influenced by the recovery of high-end consumer spending [5] - The current environment presents opportunities for companies to optimize operations and improve brand and product offerings [12]

Core Insights - The global duty-free market experienced a slowdown last year, failing to return to pre-pandemic levels, with Hainan's offshore duty-free market also facing challenges due to various factors [1][2] Financial Performance - In Q1 2025, the company's operating income was RMB 16.75 billion, a year-on-year decline of 10.96% compared to RMB 18.81 billion in the same period last year [1][2] - The net profit attributable to shareholders was RMB 1.94 billion, down 15.98% from RMB 2.31 billion year-on-year [1][2] - The net cash flow from operating activities was RMB 4.80 billion, a decrease of 9.52% from RMB 5.30 billion in the previous year [1][2][5] Cost and Expense Management - The company's gross margin showed slight pressure, with operating costs decreasing by approximately 10.51%, which was slightly lower than the revenue decline [2] - Sales expenses were RMB 2.20 billion, down about 9.0% year-on-year, while management expenses were RMB 423 million, down about 11.0% [2] Asset and Equity Position - As of March 31, 2025, the total assets of the company reached RMB 80.46 billion, an increase of 5.51% from the beginning of the year, while equity attributable to shareholders was RMB 56.97 billion, up 3.40% [2] Inventory Management - The company's inventory balance at the end of the reporting period was RMB 15.75 billion, a decrease of approximately 9.21% from RMB 17.35 billion at the end of 2024 [3]