Vi e w p o i n t | CITI'S TAKE We continue to see resilient leisure travel demand during the CNY holiday. The domestic travel trend has been largely on track so far. Nationwide passenger throughput rose by 9.3% yoy on comparable lunar basis during the first 7 days of the CNY Golden Week (15-21 Feb) and 5.5% yoy during the first 20 days of the Chunyun period (2-21 Feb), based on data from Ministry of Transport. Growth accelerated to double-digit yoy during 19-21 Feb. Per Haikou Customs, Hainan offshore duty- ...

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Chinese Consumer and Tourism Sector - **Event**: 2026 Chinese New Year (CNY) Tourism Preview Core Insights - **Growth in Experiential Consumption**: The structural growth of Chinese experiential consumption is expected to continue, with solid leisure travel demand anticipated during the upcoming CNY holiday [1] - **Passenger Throughput Growth**: The Ministry of Transportation estimates a +5.3% year-over-year growth in nationwide passenger throughput during the 40-day Chunyun period from February 2 to March 13, 2026 [1] - **CNY Holiday Impact**: The 9-day longer CNY holiday is expected to encourage leisure travel, positively impacting Hainan duty-free sales for China Tourism Group Duty Free and hotel RevPAR trends for Atour and H World [1] Duty-Free Sales Insights - **Hainan Duty-Free Sales Growth**: Hainan offshore duty-free sales grew by +45% year-over-year to RMB 4.53 billion in January 2026, driven by a +21% increase in the number of buyers and a +20% increase in per capita spending [2] - **Future Sales Expectations**: Solid duty-free sales trends in Hainan are expected to persist during the upcoming CNY Golden Week and winter peak season, supported by favorable duty-free policies and festival promotions [2] - **Chunyun Sales Performance**: During the first week of the Chunyun period (February 2-8), Hainan offshore duty-free recorded sales of RMB 1.106 billion, up +6.3% week-over-week [2] Lodging and Travel Trends - **Hotel Room Rates**: Encouraging Average Daily Rate (ADR) trends were observed in major destinations, with some lower-tier cities exceeding expectations in room sales [3] - **Leisure Travel Demand**: Solid leisure travel demand and inbound travel momentum are expected to benefit hotel RevPAR trends in China during the CNY Golden Week [3] - **Outbound Travel Trends**: Mixed trends are anticipated in Chinese outbound travel, with demand for Japan significantly down, potentially shifting to other Asian destinations and domestic tourism [4] Risks and Challenges - **Travel-Related Risks**: Key risks include potential impacts from natural disasters or pandemics, prolonged economic downturns, intense competition, and regulatory risks [30][32][34][36] Company-Specific Insights - **Atour Lifestyle Holdings Ltd**: Target price set at US$45.00 based on a 14x 2026E EV/EBITDA, reflecting faster growth and product competitiveness [30] - **H World**: Target price set at HK$38.50 based on a 14x 2025E EV/EBITDA, with industry leadership justifying the premium [33] Additional Observations - **Local Demand Optimization**: The unlimited "pick-up upon purchase" policy is expected to unleash local demand, enhancing convenience for Hainan residents [2] - **Product Diversification**: The optimization of product categories and inclusion of certain domestic products are set to diversify offerings in Hainan, catering to varying consumption dynamics [2]

Group 1 - China Tourism Group Duty Free's shares increased following the announcement of its plan to acquire LVMH's DFS travel retail business in Hong Kong and Macau [1]

Summary of Key Points from the Conference Call Industry Overview: China Tourism - **Domestic Tourism Performance**: During the 2026 New Year Holiday (January 1-3, 2026), China saw 142 million domestic tourists and tourism revenue of RMB 84.8 billion, representing a year-over-year increase of +5.2% in tourist numbers and +6.4% in revenue compared to 2024, and +15.1% and +12.3% respectively compared to 2019 [1][2] - **Per Capita Spending**: Per capita spending improved by 1.1% compared to 2024, reaching 97.6% of 2019 levels [1][2] - **Transportation Trends**: Nationwide passenger throughput increased by 17.9% year-over-year, with significant growth in railway (+52.6%), self-drive (+14.6%), and flights (+10.4%) [2][16] Duty-Free Sales - **Hainan Duty-Free Performance**: Hainan's offshore duty-free sales reached RMB 712 million during the New Year Holiday, marking a 129% year-over-year increase, driven by a 61% increase in the number of buyers and a 43% increase in per capita spending [3][17] - **Daily Sales Average**: The average daily sales during this period were RMB 237 million, attributed to favorable duty-free policies and promotional events [3][17] Outbound and Inbound Travel - **Cross-Border Travel Growth**: The average daily cross-border travel volume increased by 28.6% year-over-year, reaching 2.205 million person-times, with mainland Chinese travelers showing a 39.1% increase [4][18] - **Positive Outlook**: The momentum in inbound travel is expected to continue into 2026, positively impacting domestic tourism, including attractions and lodging [4] Company Recommendations - **Preferred Companies**: The report highlights a preference for investing in Atour, H World, and China Tourism Group Duty Free [1] Risks and Challenges - **Potential Risks for Atour**: High volatility in stock performance, travel-related impacts from natural disasters or pandemics, prolonged economic downturns, intense competition, and regulatory risks [20][22] - **Risks for China Tourism Group Duty Free**: Unfavorable duty-free policies, slow passenger flow, and loss of pricing advantage due to changes in import tariffs and competition from foreign operators [23][24] Valuation Insights - **Atour Target Price**: The target price for Atour is set at USD 45.00 based on a 14x EV/EBITDA multiple, reflecting its growth and competitiveness [20] - **CTG Duty Free Valuation**: The target price for CTG Duty Free is RMB 78, based on a DCF valuation that captures long-term growth potential [23][26] - **H World Target Price**: The target price for H World is set at HKD 38.50, reflecting its industry leadership [28][30] Conclusion - The tourism sector in China is showing strong recovery signs, particularly in domestic travel and duty-free sales, with positive growth trends expected to continue. However, potential risks related to economic conditions and competition must be monitored closely.

Summary of China Tourism Monthly Conference Call Industry Overview - **Industry Focus**: China tourism sector, specifically lodging, Hainan duty-free sales, and Chinese outbound travel Key Points Lodging Sector - **Hotel RevPAR**: In November 2025, the blended RevPAR for China hotels increased by **2.1% YoY**, compared to **2.6% YoY** in October 2025, indicating resilience despite being a low season [1][2] - **Average Daily Rate (ADR)**: Increased by **2.9% YoY**, while occupancy (OCC) decreased by **0.8% YoY** [2] - **Segment Performance**: - Economy segment RevPAR rose by **3.8% YoY** (ADR +4.4%, OCC -0.6%) - Upscale & luxury segments saw a **2.1% YoY** increase (ADR +1.4%, OCC +0.7%) - Midscale & upper midscale segments experienced a decline of **2.2% YoY** (ADR -1.3%, OCC -0.8%) [2] - **Year-to-Date Performance**: For the first 11 months of 2025, the blended RevPAR declined by **3.9% YoY** with ADR down **1.0%** and OCC down **2.9%** [2] Duty-Free Sales - **Hainan Duty-Free Sales**: Accelerated to **27% YoY** in November from **13.1% YoY** in October, driven by new policies, wealth effects, and concert events [1][3] - **Per Capita Spending**: Increased by **41% YoY** to **Rmb 7,232**, while the number of buyers saw a decline of **10% YoY** [3] - **Product Imports**: Cosmetics imports rebounded to **4% YoY** from a decline of **41% YoY** in October, apparel imports rose by **14%**, while watch imports fell by **20% YoY** [3] - **Future Outlook**: Positive sales trends are expected to continue into the peak season, potentially aiding in the earnings recovery of CTG Duty Free [3] Outbound Travel - **Travel Trends**: There was a deceleration in Chinese outbound travel in November compared to October, attributed to the typical low season for leisure travel [4] - **Travel to Japan**: Growth slowed to **3% YoY**, reaching only **75% of 2019 levels**, down from **98% in October**, influenced by recent travel warnings from the Chinese government [4] - **Shift in Demand**: Anticipated shift in demand towards other Asian destinations or increased domestic tourism [4] Companies Mentioned - **Atour Lifestyle Holdings Ltd** (ATAT.O) - **BTG Hotels** (600258.SS) - **China CYTS Tours Holding** (600138.SS) - **China Tourism Group Duty Free Corp** (601888.SS) - **H World** (HTHT.O) - **Samsonite Group SA** (1910.HK) - **Shanghai Jinjiang International Hotels** (600754.SS) - **Shangri-La** (0069.HK) - **Songcheng Performance Development** (300144.SZ) [34] Additional Insights - The hotel sector is expected to maintain a stable RevPAR trend into December, with Atour identified as a top pick due to its rapid expansion and focus on sleep-oriented retail [1] - The duty-free sector's recovery is bolstered by favorable policies and consumer spending patterns, indicating a positive outlook for earnings in the upcoming peak season [3]

Summary of Hainan Duty-Free Sector Expert Call Industry Overview - **Industry**: Hainan Duty-Free Sector - **Key Focus**: Dynamics and growth potential of duty-free sales in Hainan following government policy optimizations Core Insights 1. **Sales Growth Expectations**: - Expert predicts a challenging year for Hainan duty-free sales in 2025, with expectations of a 30% year-over-year (YoY) growth in 2026 [2][4] 2. **Sales Breakdown by Category**: - **Cosmetics & Perfumes**: Approximately 55% of sales; unlikely to see further discount rate increases [3] - **Luxuries (Apparel, Leather Bags, Accessories)**: Accounts for 28-35%; limited dilution from duty-paid sales [3] - **Watches & Jewelry**: Represents 10-12% with a gross profit margin (GPM) of around 40% [3] - **Alcohol**: Sales have decreased to 4-5% due to anti-dumping measures, but GPM is high at 70% [3] - **Consumer Electronics**: Rapid growth, now comprising 7-8% of sales [3] 3. **Market Share and Competition**: - China Tourism Group (CTG) holds a dominant market share of approximately 85% in Hainan, benefiting from strong procurement, brand partnerships, and membership programs [5] - The Sanya International Duty Free Shopping Complex Phase III, co-developed by CTG and Swire Properties, is expected to outperform other commercial projects [5] 4. **Future Market Dynamics**: - The expert anticipates that foreign duty-free operators may enter airport stores in China but face challenges in accessing the Hainan offshore duty-free market due to high operational costs and regulatory complexities [5] - Increased upscale consumption in Hainan is expected as a result of geopolitical tensions, particularly with Japan [5] 5. **Government Initiatives**: - The Hainan government has set an offshore duty-free sales target of RMB 60 billion for 2027, which is expected to drive growth [4] Risks and Challenges - **Economic Factors**: - Continued economic sluggishness and slower-than-expected growth in tourist traffic are significant risks [7] - External factors such as bad weather, natural disasters, and health epidemics could adversely affect sales [7] Additional Insights - **Key Indicators**: - Bookings of upscale hotels at Haitang Bay are highlighted as a leading indicator for peak season performance during the Chinese New Year [4] This summary encapsulates the key points discussed in the expert call regarding the Hainan duty-free sector, focusing on growth expectations, market dynamics, competitive landscape, and potential risks.

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.

Market Overview - The A-share market showed overall strength, with the ChiNext Index rising over 3% at one point. The Shanghai Composite Index closed down 0.15% at 3864.18 points, while the Shenzhen Component Index rose 1.02% to 12907.83 points, and the ChiNext Index increased by 2.14% to 3044.69 points. The total trading volume in the Shanghai and Shenzhen markets reached 1.7973 trillion yuan [1] Consumer Sector - The consumer sector, led by retail stocks, saw significant late-session gains. Notable stocks such as Hai Xin Food and Kai Chun Co. reached their daily limit up. The Ministry of Industry and Information Technology and other departments issued a plan to enhance the adaptability of supply and demand in consumer goods, aiming for a noticeable optimization of the supply structure by 2027 and a high-quality development pattern by 2030 [2] AI Industry - CPO concept stocks and AI-related stocks remained active, with several companies like Chang Guang Hua Xin and Sai Wei Electronics hitting their daily limit up. Alibaba's CEO indicated a sustained demand for AI resources, predicting a supply-demand imbalance for the next three years. Alibaba's cloud revenue grew by 34% year-on-year, with AI-related product revenue increasing for nine consecutive quarters [4][5] Pharmaceutical Sector - The pharmaceutical sector experienced strong gains, particularly in innovative drugs and vaccine concepts. Companies like Yue Wannianqing and Huaren Health reached their daily limit up. The small nucleic acid drug field is gaining attention due to recent global advancements, with expectations for significant growth driven by technological breakthroughs and commercialization [7]

Summary of China Tourism Group Duty Free Conference Call Company Overview - **Company**: China Tourism Group Duty Free (601888.SS, 601888 CG) - **Industry**: Consumer (China/Hong Kong) - **Market Cap**: Rmb149,440 million - **Stock Rating**: Equal-weight - **Price Target**: Rmb66.00, with a downside of 10% from the current price of Rmb73.10 as of October 30, 2025 Key Financial Highlights - **3Q25 Revenue**: Rmb11,405 million, flat year-over-year (yoy) after six consecutive quarters of decline [8][9] - **Net Profit**: Declined 29% yoy to Rmb662 million, impacted by higher finance costs and selling expenses [8][9] - **Gross Profit Margin (GPM)**: Remained stable at 32.0% [8] - **Dividends**: Declared a dividend per share (DPS) of Rmb0.25, representing 17% of the net profit for the first nine months of 2025 [8] Operational Insights - **Sales Recovery**: Hainan's offline duty-free market sales showed signs of stabilization with a 3% growth in September 2025 [8] - **Sales Channels**: Improvement in airport and online sales contributed to the sequential revenue growth compared to 2Q25, which saw an 8% decline yoy [8] Future Outlook - **Key Focus**: Recovery of the Hainan business is critical for profitability and valuation [8] - **Monitoring Demand**: The company is closely observing demand trends in 4Q25, especially in light of policy relaxations and developments in free-trade ports [8] Valuation and Risks - **Valuation Methodology**: A 20% discount is applied to the A-share valuation, suggesting a 2026 estimated P/E of 20x [9] - **Risks to Upside**: Favorable policy outcomes for Hainan Free Trade Zone and increased consumer spending, particularly in beauty products [12][13] - **Risks to Downside**: Economic slowdown, price competition, and insufficient supply of luxury products [12][13] Conclusion - The company is experiencing a stabilization in revenue after a prolonged decline, but net profit continues to face challenges. The recovery of the Hainan market and consumer spending trends will be pivotal for future performance. The current valuation reflects cautious optimism amid ongoing economic uncertainties.

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.