Core Viewpoint - The upcoming closure of Hainan Free Trade Port presents both opportunities and challenges for China Duty Free Group (CDFG), as it faces declining performance despite favorable policies [1][6]. Group 1: Company Performance - CDFG's revenue and net profit declined by 10% and 20% year-on-year, respectively, in the first half of the year [1]. - In Hainan, CDFG's revenue fell to 288.92 billion yuan, a 27% decrease compared to the previous year, with the region's revenue share dropping from 70% in 2021 to 51% in 2024 [9]. - The average spending per customer in Hainan's duty-free market decreased from 7368 yuan in 2021 to 5800 yuan in 2024, reflecting a significant drop in consumer spending [12]. Group 2: Market Dynamics - The expansion of the "zero tariff" product list from 1900 to approximately 6600 items will enhance CDFG's cost advantages in procuring luxury and daily consumer goods [3]. - However, popular duty-free items like cosmetics and alcohol remain on the import tax list, which may limit CDFG's pricing advantages compared to regular taxed channels [3]. - The competitive landscape is expected to intensify as more cities establish city duty-free stores, with CDFG securing 75% of the new market in cities like Guangzhou and Shenzhen [14][15]. Group 3: Consumer Behavior and Trends - The price advantage of duty-free shopping is diminishing, with the price difference between duty-free and taxed channels narrowing from 25% to 5%-10% post-closure [5]. - Increased international travel and the rise of cross-border e-commerce platforms are diverting consumer spending away from traditional duty-free shopping [12]. - CDFG is actively conducting promotional activities to stimulate sales, which may further impact profitability [12]. Group 4: Future Outlook - CDFG is at a critical transition from being driven by policy benefits to relying on internal capabilities for growth [16]. - The company's future success will depend on its ability to leverage the opportunities presented by the Hainan Free Trade Port closure while navigating the challenges posed by increased competition and changing consumer preferences [16].

Investment Rating - The report maintains an "Overweight" investment rating for the consumer services industry, expecting the industry index to outperform the market index by over 10% in the next six months [35]. Core Insights - The consumer services industry index rose by 4.92% from July 11 to July 24, 2025, outperforming the CSI 300 index by approximately 1.45 percentage points during the same period [8][10]. - The report highlights the positive impact of the upcoming closure of Hainan Free Trade Port on the duty-free shopping sector, with specific policies expected to be announced in the second half of the year [22][35]. - The report notes that while the tourism and hotel sectors are recovering, the education sector continues to decline, indicating a mixed performance across sub-sectors [10][35]. Summary by Sections Market Review - The consumer services index showed a significant increase, outperforming the broader market [8]. - Sub-sector performance varied, with tourism and hotel sectors rebounding while the education sector faced declines [10]. - A total of 35 companies in the industry reported positive returns, with notable gains from companies like Tibet Tourism and China Duty Free [14]. Industry News - Hainan Free Trade Port is set to officially close on December 18, 2025, with adjustments to the duty-free shopping policy anticipated [22]. - The visa application process for Chinese citizens traveling to India has resumed, expanding the visa-free travel range [23]. - In the first half of 2025, 333 million entries and exits were recorded, marking a 15.8% year-on-year increase [24]. Company Announcements - Companies such as Dalian Shengya and Beijing Renli reported significant changes in their financial forecasts, with some expecting substantial profit increases while others faced losses due to adverse weather conditions [28][30][31][34]. Weekly Outlook - The report suggests focusing on specific stocks that are expected to benefit from the upcoming summer season and policy changes, including China Duty Free and Jinjiang Hotels [35][36].