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]

Hainan duty-free sales breakdown by category By category breakdown: 1) cosmetics/perfumes account for c55%, and the expert thinks their discount rates are highly unlikely to be lifted further; 2) luxuries (apparel, leather bags, accessories, etc.) take up c28-35%, with a limited dilution effect brought by duty-paid sales. GPM wise, apparel GPM is c55%, while that of accessories/shoes might be lower; 3) watches & jewelry represent c10-12%, with GPM of c40%; 4) the mix of alcohol sales has edged down to c4-5% ...

November 28, 2025 06:46 AM GMT M Update China Tourism Group Duty Free | Asia Pacific Express Postcard from Hainan Lillian.Lou@morganstanley.com +852 2848-6502 Key Takeaways Opportunity from relaxed DF policy in Hainan from Nov 1, 2025: Incremental TAM (addressable market) comes from (1) international tourists departing Hainan and heading overseas; they can shop beyond the Rmb100K limit at designated DF areas (in the past only tourists departing to the mainland could shop); (2) local Hainan residents can sho ...

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.