Investment Rating - The investment rating for the company is "Buy" [7][8] Core Views - The report highlights that the company's revenue for Q3 was 11.711 billion RMB, showing a year-over-year decline of 0.38%, while the net profit attributable to the parent company was 0.452 billion RMB, down 28.9% year-over-year [1] - The company plans to initiate a mid-term dividend, with a total dividend of 0.517 billion RMB for the first nine months of 2025, accounting for 16.95% of the net profit [1] - The report indicates that demand is stabilizing, supported by various stimulus policies in Hainan, leading to a marginal recovery in duty-free sales [1][2] - The company is accelerating its strategic transformation and expanding its boundaries to stimulate demand, with the establishment of city duty-free stores progressing steadily [3][4] Summary by Sections Financial Performance - For Q1-Q3, the company's total revenue was 39.862 billion RMB, a year-over-year decrease of 7.3%, and the net profit attributable to the parent company was 3.052 billion RMB, down 22.1% year-over-year [1] - The gross profit margin for Q3 was 32.0%, remaining stable year-over-year, with sales and management expense ratios at 18.7% and 3.9%, respectively [3] Market Trends - The duty-free sales in Hainan for Q3 2025 reached 5.403 billion RMB, a year-over-year decline of 2.6%, but showed signs of improvement with a positive year-over-year growth of 3.4% in September [2] - The average spending per person increased by 13.6% year-over-year to 5,707 RMB, indicating a significant improvement in consumer spending [2] Strategic Developments - The company opened three city duty-free stores in Shenzhen, Guangzhou, and Chengdu in Q3 2025, with plans for a store in Tianjin by the end of the year [4] - The report emphasizes the potential long-term benefits from the upcoming closure of Hainan's free trade port, expected to attract international brands and enhance the integration of culture, tourism, and shopping [3] Profit Forecast and Valuation - The net profit forecasts for 2025-2027 have been revised down by approximately 21.94%, 20.48%, and 20.53%, respectively, with expected net profits of 3.658 billion RMB, 4.209 billion RMB, and 4.788 billion RMB [5] - The target price for A-shares has been adjusted to 81.20 RMB and for H-shares to 75.84 HKD, reflecting a premium valuation based on comparable companies [5]

Core Viewpoint - China is enhancing its duty-free shop policies to stimulate domestic consumption, attract foreign visitors, and promote the healthy development of the duty-free retail business [1][2]. Group 1: Policy Enhancements - The Ministry of Finance, Ministry of Commerce, Ministry of Culture and Tourism, General Administration of Customs, and State Taxation Administration announced a notification to optimize the management of domestic goods tax refund (exemption) policies [1]. - The policy aims to support the sales of domestic products in both port exit duty-free shops and city duty-free shops, expanding the range of products available for travelers [1][2]. Group 2: Product and Operational Changes - The notification will allow for the expansion of product categories in duty-free shops, including mobile phones, mini drones, sports goods, health foods, over-the-counter drugs, and pet foods [1][2]. - There will be a simplification of the regulatory and operational procedures for tax refunds (exemptions) on domestic goods sold in duty-free shops, facilitating the entry of domestic products [2]. Group 3: Approval and Service Improvements - Starting from November 1, the notification will delegate approval authority for establishing port exit duty-free shops and determining the operating entities of these shops [2]. - The policy encourages online reservation services for duty-free shops, allowing travelers to reserve items in city duty-free shops and pick them up at port entry duty-free shops [2].