3 November 2025 | 8:09AM HKT Equity Research China Tourism Group Duty Free (601888.SS) 3Q25 bottom line still below expectation, but revenue in Hainan and airport stabilized as anticipated. Pleasant surprise from first interim DPS | 601888.SS | 12m Price Target: Rmb70.00 | Price: Rmb76.07 | Downside: 8.0% | | --- | --- | --- | --- | | 1880.HK | 12m Price Target: HK$61.00 | Price: HK$66.80 | Downside: 8.7% | After the market closed on Oct 30th, CTGDF released its 3Q25 results and hosted a conference call on ...

Summary of China Tourism Group Duty Free Conference Call Company Overview - **Company**: China Tourism Group Duty Free (CTG Duty Free) - **Ticker**: 1880.HK - **Market Cap**: HK$127 billion (US$16.4 billion) [5] Key Industry Insights - **Hainan Duty-Free Market**: Hainan is the key revenue source for CTG Duty Free, accounting for 55% of total revenue. The duty-free sales in Hainan are expected to improve, with a forecasted decline of only 1% in H225E, turning positive in Q425E [2][9]. - **Sales Performance**: Hainan duty-free sales decreased by 9% YoY in H125 but narrowed to a decline of 5% in June 2025, indicating a recovery trend [2][9]. Financial Performance - **Net Profit Forecast**: The net profit for Q425E is expected to increase YoY, with a projected NPM of 5.7% in H225E, up 1.8 percentage points YoY [3][9]. - **Earnings Per Share (EPS)**: EPS estimates for 2025-2027 have been cut by 14-12% due to lower-than-expected revenue and deteriorating margins. The revised EPS for 2025E is Rmb1.96, down from Rmb2.28 [6][12]. - **Revenue Projections**: Total revenue is expected to decline to Rmb53.647 billion in 2025E, with a gradual recovery to Rmb63.325 billion by 2027E [12][19]. Strategic Outlook - **Pricing Strategy**: The company plans to adjust its pricing strategy by reducing discounts and promotions, which is expected to stabilize margins and improve profitability [3][9]. - **Market Competition**: Cooling competition in Hainan's duty-free market is anticipated to support NPM expansion, alongside improved inventory management [9]. Valuation and Investment Rating - **Price Target**: The price target has been raised to HK$71.20 from HK$58.40, reflecting a 17% discount to the new price target for CTG-A [4][5]. - **Investment Rating**: The company maintains a "Buy" rating, with expectations of positive sales growth and margin improvement in the coming years [4][9]. Risks and Challenges - **Major Risks**: - A sharp decline in CDF International's net profit - Higher concession rates at airports post re-tendering - Lower Hainan NPM due to increased discounts and a higher sales contribution from lower-margin consumer electronics [9]. Additional Financial Metrics - **Gross Profit Margin (GPM)**: Expected to improve slightly, with GPM projected at 31.8% for 2025E [12]. - **Debt Metrics**: The net debt to EBITDA ratio is not meaningful (NM) for 2025E, indicating a strong balance sheet position [5]. Conclusion - The outlook for China Tourism Group Duty Free is cautiously optimistic, with expected improvements in sales and profitability driven by strategic pricing adjustments and a recovering Hainan market. However, potential risks related to competition and operational costs remain significant considerations for investors.

We are also watchful about Hainan's free-trade-zone policy and impact to duty-free operators. The Hainan government has not yet released any details, but we expect it to do so later this year as Central government targets opening the FTZ in 2025. Recap of March-2025 Hainan offline DF trends: Avg daily sales Rmb94mn (-5% YoY vs -13% YoY in 2M25); Daily shoppers 17.7K (-26% YoY) and spending per shopper Rmb6.5K (+28%). The ASP growth could be helped by more electronic product sales which might not translate t ...