October 30, 2025 04:23 PM GMT China Tourism Group Duty Free | Asia Pacific M Update 3Q25: Revenue growth finally stabilized, but net profit continued to fall Reaction to earnings Unchanged Modest shortfall Modest revision lower Impact to our thesis Financial results versus consensus Direction of next 12-month consensus EPS Source: Company data, Morgan Stanley Research Key Takeaways Exhibit 1: CTG duty-free quarterly results | 2Q24 | 3Q24 | 4Q24 | 1Q25 | 2Q25 | 3Q25 | yoy | 3% | Rmb'mn | 1Q24 | qoq | Revenue ...

Summary of Conference Call Notes Industry Overview - **Industry**: China Duty Free Sector - **Key Location**: Hainan Key Points and Arguments 1. **Policy Optimization**: Hainan announced adjustments to its offshore duty-free shopping policy, effective from November 1, 2025. This is seen as a response to the central government's push to expand domestic demand and promote consumption [2][3]. 2. **Expanded Product Categories**: The new policy will include additional product categories such as pet supplies, portable musical instruments, and mini-drones, broadening the scope of saleable goods [2]. 3. **Eligibility for Shoppers**: All eligible shoppers with valid exit-entry documents and tickets to depart from Hainan can now participate in duty-free shopping, with an annual quota of Rmb100,000 per person [2]. 4. **Hainan Residents' Benefits**: Hainan residents who leave the province within a year can purchase duty-free goods multiple times, adhering to the "immediate pickup" shopping method [2]. 5. **Domestic Goods Inclusion**: Duty-free shops can now purchase certain Chinese-made goods (e.g., silk scarves, clothing, coffee, ceramics, tea) and sell them under the duty-free scheme, qualifying for VAT and consumption tax rebates [2]. Sales Forecast 1. **Sales Growth Expectation**: Hainan's duty-free sales are projected to grow by 5% year-over-year in Q4 2025 and maintain positive growth in 2026 and 2027 [3]. 2. **CTG Sales Growth**: China Tourism Group (CTG) is expected to see positive growth in Hainan duty-free sales starting Q4 2025, with forecasts of 5% and 10% year-over-year growth in 2026 and 2027, respectively, if per-customer spending stabilizes [5]. Financial Performance 1. **Earnings Recovery**: CTG's earnings decline is expected to narrow to 15-20% year-over-year in Q3 2025, with a potential return to positive earnings in Q4 2025. Net profit is forecasted to grow by 13% and 15% year-over-year in 2026 and 2027, respectively [5]. Potential Risks 1. **Downside Risks**: The sector faces risks such as continued economic sluggishness, slower-than-expected growth in tourist traffic, adverse weather conditions, and potential disasters (earthquakes, epidemics) [7][8]. 2. **Market Conditions**: Risks include declining tourist numbers in Sanya, loosening policies affecting the duty-free industry, and natural disasters [8]. Additional Insights 1. **Downtown Duty-Free Policy**: Adjustments to the downtown duty-free store policy are anticipated in November, which may further impact sales dynamics [4]. 2. **Analyst Contact Information**: Analysts involved in the report include Xin Chen, Ingrid Zhang, Beini Du, Jaehyung Choi, and Bruce Mi, with their respective contact details provided for further inquiries [6]. This summary encapsulates the critical insights from the conference call regarding the China Duty Free sector, particularly focusing on Hainan's policy changes, sales forecasts, financial performance, and associated risks.