Core Viewpoint - The duty-free industry is witnessing a significant recovery with a narrowing decline in sales and a strong rebound in average transaction value, indicating a new investment window due to the implementation of the closure policy, the rollout of "buy and refund" services, and the context of increased tariffs on imports from the US [1][2]. Group 1: Hainan Duty-Free Market - Sales decline in Hainan's duty-free sector is narrowing, with sales amount showing marginal improvement in the first five months of 2025 [1]. - The average transaction value has turned positive after two years of decline, with February's average price per item reaching a recent high [1]. - The implementation of the closure policy is expected to enhance Hainan's overall attractiveness in consumption, business, and logistics, thereby strengthening the core competitiveness of leading companies as customer flow potential is gradually released [1]. Group 2: Tax Refund and Market Dynamics - The nationwide promotion of the "buy and refund" service starting April 8 is expected to increase the shopping conversion rate for foreign consumers in China [2]. - The duty-free channel has significant price advantages over taxed channels, allowing for substantial market share expansion; for example, duty-free cosmetics can be priced at 70-80% of taxed prices, while wine can be as low as 60% and tobacco at 45% [2]. - The decline in South Korean duty-free sales due to local customer purchasing power and regulatory changes is enhancing Hainan's position as a substitute market [2].

Investment Rating - The investment rating for the company is "Buy" [6] Core Views - The company is expected to benefit from optimized duty-free policies at ports and anticipates growth in city duty-free sales [1][4] - The company's revenue for 2024 is reported at 56.47 billion yuan, a year-on-year decrease of 16.38%, with a net profit of 4.27 billion yuan, down 36.44% [1] - The company is focusing on enhancing its online, store, and supply chain capabilities, which are expected to contribute to long-term growth [4] Summary by Sections Financial Performance - In 2024, the company achieved a total revenue of 56.47 billion yuan, with a significant decline in net profit to 4.27 billion yuan [1] - The fourth quarter of 2024 saw a revenue of 13.45 billion yuan, down 19.46% year-on-year, and a net profit of 348 million yuan, down 76.93% [1] - The gross margin for Q4 2024 decreased by 3.50 percentage points to 28.54%, attributed to declining sales and increased promotional efforts [2] Market Dynamics - The company has seen a steady increase in its share of the duty-free market in Hainan, with a 2 percentage point increase in 2024 [3] - The company successfully won bids for duty-free operations at 10 airports, benefiting from the expansion of visa-free policies and increased international flight volumes [3] - The city duty-free stores are expected to contribute to growth, with new store openings planned in major cities [3] Future Projections - Revenue projections for 2025-2027 are estimated at 58.03 billion yuan, 63.55 billion yuan, and 68.73 billion yuan respectively, with net profits expected to reach 4.50 billion yuan, 4.93 billion yuan, and 5.28 billion yuan [4][5] - The company’s earnings per share (EPS) are projected to be 2.18 yuan, 2.38 yuan, and 2.55 yuan for the years 2025, 2026, and 2027 respectively [5]