Summary of China Duty Free Group Conference Call Company Overview - **Company**: China Duty Free Group (中国中免) - **Industry**: Duty-Free Retail and Tourism in Hainan, China Key Points and Arguments Industry Performance - Hainan's duty-free shopping in May saw a slight year-on-year decline of 0.86%, but the cumulative decline for the first five months narrowed to 9.59% [2][4] - The average spending per person increased from 4,000-5,000 RMB last year to 5,000-6,000 RMB, indicating an improvement in consumption quality [2][5] - The duty-free policy remains unchanged, with a yearly limit of 100,000 RMB per person [5] Company Strategies - China Duty Free Group is expanding its product range by introducing exclusive items and self-branded products, and attracting high-net-worth customers through charter flights [2][6] - The company is leveraging new media marketing to enhance customer conversion rates and is collaborating with government tourism activities and consumption vouchers to boost performance [2][6] - The core customer demographic is concentrated in the 20-49 age range, contributing 94% of total spending, with plans to target Gen X, Gen Z, seniors, and family groups for future growth [2][8] Future Projections - The company expects Hainan's business to stabilize or grow by 2025, with inbound and outbound business maintaining double-digit growth [2][9] - Overall revenue and profit are projected to increase steadily, although specific figures are yet to be disclosed [2][10] Customer Insights - The current customer base primarily consists of individuals aged 20-49, with strategies being developed to cater to various consumer segments [2][8] - The company is focusing on enhancing the shopping experience and product offerings to meet the preferences of different demographics [2][8] Marketing and Promotions - Marketing expenses are relatively low compared to competitors, with many promotional activities funded by brand partners [2][13] - The company has seen significant sales boosts from government-issued consumption vouchers, which have a reported multiplier effect of 1:18 [2][7] Economic Impact - The depreciation of the RMB is seen as beneficial for luxury goods demand, as it may enhance the attractiveness of domestic shopping [4][16] - Despite a pessimistic economic outlook, there are positive indicators such as strong performance from luxury brands like Hermès, suggesting potential for recovery in consumer spending [14][15] Brand and Product Management - The company is actively optimizing its brand matrix by phasing out underperforming brands and introducing new ones that meet market demand [4][17] - The product mix includes cosmetics (40% of sales), jewelry and watches (over 30%), with electronics and health products also contributing to sales growth [2][13] Shareholder Returns - China Duty Free Group has increased its dividend payout ratio to over 50% for the past two years, indicating a commitment to returning value to shareholders [2][23] - The company is considering stock buybacks but currently prioritizes cash dividends for direct shareholder benefits [2][24][25] Data Transparency - The company plans to continue updating key operational metrics such as conversion rates and average transaction values to provide better insights to investors [2][27] Additional Insights - The attractiveness of Hainan as a tourist destination is bolstered by large events and improved visa policies, which are expected to drive consumer spending [19][22] - The luxury goods market is anticipated to remain strong, with consumer demand likely to rebound as economic conditions improve [20][21]

Investment Rating - The investment rating for the company is "Buy" (maintained) [1][4][13] Core Views - The company's operating performance is under pressure due to rising gold prices, with a significant decline in revenue and net profit for 2024 and Q1 2025. Revenue for 2024 was 13.89 billion yuan, down 14.7% year-on-year, and net profit was 1.01 billion yuan, down 23.2% year-on-year. For Q1 2025, revenue was 2.67 billion yuan, down 47.3%, and net profit was 252 million yuan, down 26.1% [4][5] - The company is expected to see a recovery in profitability from 2025 to 2027, with projected net profits of 1.15 billion yuan, 1.36 billion yuan, and 1.59 billion yuan respectively. The current stock price corresponds to a PE ratio of 12.4, 10.5, and 9.0 for 2025-2027 [4][5] - The company is focusing on optimizing its brand matrix and channel structure to enhance growth potential, despite current challenges [4][6] Financial Summary - In 2024, the company achieved a revenue of 138.91 billion yuan, with a year-on-year decline of 14.7%. The net profit attributable to the parent company was 10.10 billion yuan, down 23.2% [4][7] - For Q1 2025, the company reported a revenue of 26.73 billion yuan, a decrease of 47.3%, and a net profit of 2.52 billion yuan, down 26.1% [4][5] - The company’s gross margin for Q1 2025 was 26.2%, an increase of 10.6 percentage points, attributed to a decrease in the proportion of low-margin gold products [5][6] Channel and Brand Strategy - The company plans to optimize its channel structure and brand matrix in 2025, with a focus on enhancing its direct sales channels, which have shown resilience. In 2024, the company opened 663 new stores, ending the year with a total of 5008 stores [6][7] - The brand strategy includes the rebranding of multiple brands and strengthening partnerships, such as "Zhou Dasheng X National Treasure" and "Zhou Dasheng Classic" [6][7]

Investment Rating - The investment rating for the company is "Buy" (maintained) [1] Core Views - The company's operating performance is under pressure due to rising gold prices, with revenue for 2024 expected to be 13.89 billion yuan, a year-on-year decrease of 14.7%, and a net profit of 1.01 billion yuan, down 23.2% [4] - For Q1 2025, the company reported revenue of 2.67 billion yuan, a significant decline of 47.3%, and a net profit of 252 million yuan, down 26.1% [4] - The company is expected to reshape its multi-brand positioning, which is anticipated to drive future growth momentum, with a reasonable current valuation [4] Financial Summary - The total market capitalization of the company is 142.80 billion yuan, with a circulating market capitalization of 141.97 billion yuan [1] - The company's total revenue for 2023 was 16.29 billion yuan, with a year-on-year growth of 46.5% [7] - The projected revenue for 2025 is 15.30 billion yuan, reflecting a year-on-year increase of 10.1% [7] - The projected net profit for 2025 is 1.15 billion yuan, with a year-on-year growth of 14.0% [7] - The company's EPS for 2025 is expected to be 1.05 yuan, with a P/E ratio of 12.4 times [4][7] Channel and Brand Strategy - The company plans to optimize its channel structure and brand matrix in 2025, with a focus on enhancing its direct sales channels [6] - In 2024, the company opened 663 new offline stores, bringing the total to 5,008, although the franchise channel faced challenges [6] - The company is actively working on its multi-brand positioning, including collaborations with "National Treasure" and strengthening its brand matrix [6]