Core Viewpoint - In 2024, China Duty Free Group reported a significant decline in both revenue and net profit, primarily due to the collapse of its core market, the Hainan offshore duty-free business [1][2]. Revenue and Profit Decline - The company achieved a total revenue of 56.474 billion yuan, a year-on-year decrease of 16.38%, and a net profit attributable to shareholders of 4.267 billion yuan, down 36.44% year-on-year [1]. - The Hainan market experienced a drastic revenue drop from 39.65 billion yuan in 2023 to 28.892 billion yuan in 2024, reflecting a decline of 27.13% and reducing its contribution to total revenue from 58.71% to 51.16% [2]. Market Challenges - The decline in Hainan's performance is attributed to several factors: - Outbound tourism diversion as international flights resumed, leading consumers to prefer shopping in destinations like Japan and Southeast Asia [2]. - A downgrade in consumer spending and the rise of domestic brands, with the luxury goods market in China experiencing its first decline in 15 years [2]. - Increased competition with the number of duty-free operators in Hainan rising to six, disrupting the previously dominant position of China Duty Free [2]. Profit Pressure - Despite a nearly 2 percentage point increase in market share, profit margins faced significant pressure: - The gross margin for offshore duty-free business fell by 2.03 percentage points to 23.73% due to increased discounting [4]. - Fixed costs, including rising airport channel rents and inventory impairment losses of 740 million yuan, further compressed profit margins [4]. - In Q4, net profit attributable to shareholders plummeted to 348 million yuan, a staggering year-on-year decline of 76.9%, marking the worst performance of the year [4]. Business Structure Adjustment - In response to the downturn in Hainan, the company is diversifying its channels to balance losses and gains: - Airport duty-free sales grew, benefiting from the recovery of international flights, with revenues at Beijing and Shanghai airports increasing by 115% and 32% respectively [6]. - The company secured operating rights for ten new airport and port duty-free projects, enhancing its channel advantages [6]. International Expansion - To counter domestic competition, the company is accelerating its international expansion: - New openings include duty-free stores at Singapore Changi Airport and Hong Kong International Airport, as well as operations in Japan and Sri Lanka [8]. - A new cargo route from Milan to Haikou has been established, reducing product transport time to two days, facilitating global inventory management [8]. Emerging Channel Potential - The company has won operating rights for six new cities, increasing its total to 13 city duty-free stores, which are expected to contribute significantly to sales [10]. - The membership program has surpassed 38 million members, although the value of consumer reward points has declined for two consecutive years, indicating a need to enhance repurchase rates and average transaction values [11]. Future Challenges and Strategic Outlook - Short-term challenges include uncertainties in consumer recovery and the potential impact of aggressive discounting by competitors on industry profit margins [11]. - Long-term strategies focus on internationalization and digitalization, leveraging initiatives like the "Belt and Road" to expand into South Asia and collaborating with domestic brands to establish overseas duty-free channels [12][13].