Summary of Conference Call Notes Industry and Company Involved - **Industry**: Duty-Free Retail and Airport Operations - **Companies**: Shanghai International Airport (SIAC) and China Tourism Group Duty Free (CTGDF) Key Points and Arguments Shanghai Airport Duty-Free Store (DFS) Tender Results - The tender results for the DFS concessions at Pudong and Hongqiao Airports were announced, with Avolta winning the concession for Pudong Airport Terminal 1 and Satellite Hall 1, while CTGDF won for Terminal 2, Satellite Hall 2, and Hongqiao Airport Terminal 1 [2][5] - The new rental payment structure will consist of a fixed fee and a lower revenue-sharing fee, effective from January 1, 2026, to December 31, 2033, with a mid-term review [2][5] Impact on Shanghai Airport - The new rental fee model, which includes a minimum/fixed rental fee and a lower average revenue share of 13% (down from 23%), is seen as negative for Shanghai Airport, indicating management's reduced confidence in potential DFS sales growth [2][5][6] - Estimated total reduction in DFS rental revenue for Shanghai Airport is projected to be Rmb400 million from 2026 to 2033, with a total earnings reduction of Rmb1.7 billion during the same period [2][7][9] - The minimum rental fee will remain largely unchanged at Rmb700 million per annum [2][6] Market Expectations and Analyst Ratings - The tender results missed market expectations, which anticipated higher rental fees due to increased competition and higher revenue-sharing rates [5][6] - Analysts maintain a **Sell** rating on Shanghai Airport due to these developments and the overall bearish outlook on DFS spending per passenger [5][15] Impact on China Tourism Group Duty Free (CTGDF) - CTGDF will operate only half of the DFS store space at Pudong Airport starting in 2026, leading to an estimated 5% negative revenue impact in the next 2-3 years [5][11] - Despite the reduced space, CTGDF will benefit from a higher earnings share (100% vs. 51% previously) from the stores it operates, which may mitigate the overall earnings impact [5][11] - Analysts maintain a **Neutral** rating on CTGDF, citing stretched valuations and several headwinds, including weak consumer sentiment and competition from online platforms [12][14] Financial Projections - The average revenue-sharing rate for Pudong is estimated at 13%, while for Hongqiao it is 12% [6][9] - Projected DFS sales at Shanghai airports are expected to increase slightly in 2026 but decline thereafter, with total DFS sales at Rmb6,466 million in 2026 and Rmb6,986 million in 2027 [9][11] Risks and Considerations - Key upside risks for CTGDF include potential policy stimulus for consumption and the new downtown DFS policy effective from October 1, 2024, which may drive more sales [12][14] - Key downside risks include intensified price competition from e-commerce platforms and weakening demand for luxury products [14] Other Important Content - The new tenancy model includes a review one year ahead of Phase 2 to decide on contract continuation or termination [8] - The financial impact of the tenancy change is detailed in various exhibits, showing a clear comparison between old and new contract terms [9][11] This summary encapsulates the critical insights from the conference call, focusing on the implications for Shanghai Airport and CTGDF, as well as the broader market context.