Summary of China Tourism Group Duty Free (601888.SS) Conference Call Company Overview - **Company**: China Tourism Group Duty Free (CTGDF) - **Stock Code**: 601888.SS - **Market Cap**: Rmb146.4 billion / $21.3 billion - **Enterprise Value**: Rmb121.5 billion / $17.6 billion - **12-Month Price Target**: Rmb77.00 - **Current Price**: Rmb70.77 - **Upside Potential**: 8.8% [1] Key Financial Metrics - **FY25 Preliminary Results**: - **Net Profit**: Rmb3.6 billion, down 16% YoY, slightly below estimates due to a Rmb0.2 billion goodwill impairment charge - **4Q25 Net Profit**: Rmb0.7 billion, up from Rmb0.3 billion in 4Q24 and Rmb0.4 billion in 3Q25 - **Revenue**: Rmb53.7 billion for FY25, a decrease of 5% YoY [1][20] Core Insights - **Hainan Sales Performance**: - Hainan's DFS store sales reached Rmb38 billion in FY25, a decline of 2% YoY, but showed a recovery with a 19% YoY increase in 4Q25 - Factors contributing to the recovery include: 1. Reduced diversion of travelers to overseas destinations due to geopolitical tensions 2. Increased sales of high-ticket items like gold and jewelry 3. Consumption vouchers from the Hainan government providing discounts [1][20] - **Sales Trends**: - Despite a decrease in the number of shoppers (-8% YoY to 1.1 million in 4Q25), average spending per shopper increased by 30% [1][20] - Airport and online sales fell approximately 20% YoY, indicating challenges outside Hainan [17] - **Gross Margin Stability**: - Gross margin remained stable at 32.7% in 4Q25, indicating effective management of promotional activities and pricing strategies [1][18] Future Outlook - **Earnings Forecasts**: - FY26E and FY27E earnings forecasts revised up by 4-6% - New target prices set at Rmb77 for A-shares and HK$67 for H-shares [1][18] - **Market Conditions**: - Anticipated competition in Hainan due to the islandwide tax-free policy, which may attract more retailers and brands [1][18] - Potential for reduced government vouchers in off-peak seasons, impacting sales [1][18] - **Contractual Changes**: - New DFS contracts at Shanghai Airport may lead to a 5-4% earnings impact due to reduced operating areas [1][18] Additional Considerations - **Valuation Metrics**: - P/E ratios projected to decrease from 39.0 in FY25 to 20.0 by FY28 - Dividend yield expected to increase from 1.5% in FY25 to 3.0% by FY28 [11] - **Sensitivity Analysis**: - A 5% increase in Hainan DFS revenue could boost FY26E earnings by 8-9% [19] - Each 1 percentage point change in gross margin could result in a 9% earnings dilution [19] This summary encapsulates the key points from the conference call, highlighting the financial performance, market dynamics, and future outlook for China Tourism Group Duty Free.

Summary of China Tourism Group Duty Free Conference Call Company Overview - **Company**: China Tourism Group Duty Free (CTG) - **Ticker**: 601888.SS, 1880.HK - **Industry**: Consumer (China/Hong Kong) Key Points Industry and Market Dynamics - **Opportunity from Relaxed Duty-Free Policy**: As of November 1, 2025, the addressable market (TAM) expands due to: 1. International tourists departing Hainan can shop beyond the Rmb100K limit at designated duty-free areas. 2. Local Hainan residents are now allowed to shop at duty-free stores. 3. Potential for category expansion in product offerings [2][4] Development Projects - **Sanya Duty-Free City Phase 3**: - A significant project with a gross floor area (GFA) of 410,000 sq.m, featuring an open-plan design. - This project is four times larger than Swire's Chengdu Taikoo Li, with approximately 25,000 sq.m of commercial GFA. - Aims to enhance the traveler experience by increasing the duration of stay and spending [3][8] Financial Performance and Outlook - **Sales Growth**: - Double-digit growth in traffic to Sanya Duty-Free City since Q3 2025. - Sales also grew in double digits during October and November 2025. - Management expresses confidence in the 2026 outlook, supported by a diversified sales mix including consumer electronics, gold jewelry, and sportswear [8] Valuation and Stock Performance - **Current Valuation**: - CTG-A is valued at 32x 2026 P/E, while CTG-H is at 27x 2026 P/E based on Refinitiv consensus estimates. - Price target set at Rmb66.00, indicating a downside of 16% from the closing price of Rmb78.50 on November 27, 2025 [4][6] Risks and Considerations - **Risks to Upside**: - Favorable policy outcomes for Hainan Free Trade Zone and downtown duty-free shopping. - Improvement in consumer spending, particularly in beauty and luxury products [12][13] - **Risks to Downside**: - Overall economic slowdown affecting disposable income. - Price competition among various retail channels. - Insufficient supply of luxury products and potential deepening of H-A discount [12][13] Conclusion - The company is positioned to benefit from favorable policy changes and increasing consumer demand, particularly in Hainan. However, economic uncertainties and competitive pressures pose risks to its growth and valuation.