Summary of China Tourism Group Duty Free Investor Call Company Overview - **Company**: China Tourism Group Duty Free (Ticker: 1880.HK) - **Industry**: Consumer sector in China/Hong Kong - **Market Capitalization**: Rmb191,726.9 million - **Current Share Price**: HK$91.60 (as of January 23, 2026) - **Price Target**: HK$89.00 - **52-Week Range**: HK$97.95 - HK$43.15 - **Average Daily Trading Value**: HK$221 million Key Takeaways from the Call 1. **M&A Activity**: The acquisition of DFS's Greater China retail business is seen as a strategic move to enhance the company's market position in Hong Kong and Macau, leveraging synergies from existing membership and networks [6] 2. **Sales Growth**: Recent sales growth in Hainan has been strong, driven by a diverse product mix beyond just gold jewelry and electronics, indicating a healthy demand across various categories [6][2] 3. **Margin Management**: Concerns regarding product mix impacting margins are acknowledged, but the company believes the dilution effect from increased sales in lower-margin categories will be manageable [2] 4. **Luxury Brand Relationships**: Strengthening ties with luxury brands, particularly LVMH, is expected to enhance cooperation in Hainan and other channels, supporting overall growth [6] 5. **Overseas Expansion**: The company is focusing on overseas expansion through both concession bidding and M&A, which is anticipated to drive top-line growth [6] 6. **Market Outlook**: The overall outlook for 2026 is positive, with expectations of quality growth supported by overseas expansion and strong luxury brand relationships [6] Risks and Considerations 1. **Economic Factors**: Potential risks include an overall economic slowdown and pressure on disposable income, which could impact consumer spending [11] 2. **Competitive Landscape**: Increased price competition among various retail sales channels and intensified competition if the government further opens the duty-free market are noted as risks [11] 3. **Consumer Trends**: Improving consumer spending, particularly in beauty products, and a shift towards non-beauty luxury products are seen as favorable trends [11] Valuation Insights - **Valuation Methodology**: A 15% discount is applied to the A-share valuation, implying a 2026 estimated P/E of 30x compared to 35x for A-shares [8] - **Target P/E**: The target P/E for 2026 is set at 35x, which aligns with the average for the China consumer discretionary sector [9] Analyst Ratings - **Stock Rating**: Equal-weight - **Industry View**: In-Line Conclusion The investor call highlighted China Tourism Group Duty Free's strategic initiatives, particularly in M&A and overseas expansion, while also addressing potential risks associated with economic conditions and competition. The company maintains a positive outlook for growth in 2026, supported by strong sales performance and luxury brand partnerships.

Summary of Hainan Duty Free Expert Call Industry Overview - The focus of the call was on the travel retail and duty-free (DFS) industry in Hainan, discussing sales trends, growth drivers, pricing competition, and market outlook through 2026 [2][3]. Key Points on Hainan DFS Sales Trends - Hainan's DFS sales began to recover towards the end of Q3 2025, showing a year-over-year increase of +3% in September and +13% in October, followed by +27% in November and +17% in December after policy relaxation on November 1st [3]. - The recovery was attributed to: - Reduced diversion of travelers to overseas destinations, particularly due to political tensions affecting travel to Japan [3]. - Strong sales of 3C products, especially the new iPhone launched in October 2025, leading to a significant increase in per-shopper spending, which rose by +41% in November and +21% in December [3]. - Government-issued consumption vouchers and DFS operators' sales promotions during peak seasons [3]. Future Outlook for 2026 - The expert expressed cautious optimism for continued growth in Hainan's DFS sales, anticipating healthy inbound travel and increased spending on high-ticket items [4]. - However, there are concerns regarding the potential slowdown in the issuance of consumption vouchers and limited sales boosts from Hainan residents due to recent policy changes [7]. Competitive Landscape - The competitive environment in Hainan remains stable, with China Tourism Group Duty Free (CTGDF) expected to maintain a dominant market share of 70-80% [8]. - The expert noted a low likelihood of new DFS entrants in the next 2-3 years, and CTGDF is focusing on product variety rather than aggressive pricing strategies [8]. Sales Data Insights - Hainan DFS sales data indicated that Hainan residents contributed only Rmb11 million in sales, accounting for less than 1% of total sales, with a much lower average spending of Rmb2,500 per shopper [7]. - The average spending per shopper in Hainan DFS increased significantly, reaching Rmb7,218 in November 2025, compared to Rmb5,000-6,000 in the previous year [3]. Additional Observations - The expert highlighted that the take rate by Shanghai Airport on its renewed contract varies by product category, with food products at the lower end (8%) and cosmetics and tobacco at the higher end (up to 24%) [8]. - CTGDF's share price has rebounded sharply, reflecting strong sales performance in Hainan, with a focus on margin trends in upcoming results [9].

Investment Rating - The report assigns a "Buy" rating for China Tourism Group Duty Free Corp (CTGDF) [4] Core Insights - Encouraging sales trends have emerged since the new duty-free policy took effect on November 1, with Hainan offshore duty-free sales increasing by 34.86% year-on-year during the first week of November [1][2] - The online platform in Hainan saw a significant growth in Gross Merchandise Value (GMV) of 40.4% during the Double 11 shopping festival, indicating a positive shift in consumer behavior [1][2] - The number of buyers has shown positive growth, particularly in categories such as mobile phones and gold accessories, suggesting a recovery in consumer spending [2] - Management expresses confidence in peak season performance, supported by new policies, marketing campaigns, and concert events in Hainan [2] Sales Performance - Hainan offshore duty-free sales reached Rmb506 million during the first week of November, with a notable increase in per capita spending by 30.5% year-on-year [2] - Daily sales exceeded Rmb100 million on November 11, indicating strong consumer engagement during the shopping festival [2] - The growth in sales is attributed to a combination of new policies, a wealth effect, and a low base from the previous year [1] Pricing Strategy - The company has adopted a less aggressive pricing discount strategy this year, focusing on balancing gross profit margin (GPM) and sales [2] - Over 200 popular cosmetics SKUs are offered weekly, with 80% having a price advantage compared to competitors [2] Category Performance - The cosmetics category has shown recovery, with positive growth since Q3 2025, while luxury goods performance remains mixed [3] - The watch category has lagged, whereas gold & jewelry and boutique categories have experienced growth [3] Valuation - The DCF-based target price for CTGDF is set at Rmb78, reflecting the long-term structural growth potential of its duty-free business [6]

Core Viewpoint - The opening of Shenzhen's first city duty-free store marks a significant development in the retail landscape, offering a blend of duty-free and taxable goods, innovative services, and a unique shopping experience for both domestic and international travelers [1][3][10]. Group 1: Store Features and Offerings - The city duty-free store, developed by China Duty Free Group, Shenzhen Duty Free Group, and Shenye Group, spans nearly 3,000 square meters, making it the largest city duty-free store in China [1]. - The store features a diverse product matrix focusing on beauty, high-end watches, premium spirits, and local tech brands, aiming to provide a high-quality shopping experience [5][7]. - It introduces a "Shenzhen-made" element with a dedicated electronic technology experience area, showcasing local tech brands to attract foreign tourists [5][7]. Group 2: Innovative Services - The store employs a multi-faceted model combining duty-free, tax refund, and taxable goods, enhancing the shopping experience [3]. - It has launched a "cloud tax refund" service, facilitating convenient payments and efficient tax refunds for consumers [3]. - Shenzhen Customs has implemented innovative regulatory methods to streamline the shopping process, promoting a high-quality launch for the duty-free store [3]. Group 3: Consumer Engagement and Promotions - The store targets both outbound travelers and local consumers, aiming to stimulate cross-border consumption and local spending [8]. - During the opening period, the store offers exclusive promotions, including discount vouchers and loyalty points, enhancing consumer incentives [10]. - Duty-free products are priced 11%-25% lower than taxable counterparts, providing tangible benefits to consumers [10].

Core Insights - Wuhan has officially opened its first city duty-free shop, marking it as the first new store opened nationwide following the recent policy changes by the Ministry of Finance and other departments [1][5] - The duty-free shop is a joint venture between Wangfujing Group and Wushang Group, located in Wushang MALL, which is expected to attract over 32 million visitors in 2024 [1][4] Summary by Sections Store Operations - The duty-free shop targets travelers who will depart within 60 days, requiring valid exit documents and purchased tickets for international flights or cruises [3] - The shopping process involves selecting items in-store and picking them up at designated duty-free points at the exit [3][4] - The store features over 100 international brands across various categories, including cosmetics, fine wines, electronics, and local cultural products [3][4] Local and Cultural Products - The shop also showcases local heritage products, such as "Palace Museum cultural products" and "Wuhan gifts," promoting traditional crafts and cultural items [3] - The "Wuhan gifts" section includes over 200 items from local intangible cultural heritage projects [3] Market Potential - The new duty-free shop aims to cater to the consumption needs of over 2 million international travelers visiting Hubei annually [4] - During the recent "May Day" holiday, Hubei welcomed 75,000 inbound tourists, reflecting a year-on-year increase of 54.04% [4] Policy Context - The establishment of the Wuhan duty-free shop is part of a broader initiative to set up similar stores in eight cities, including Guangzhou, Chengdu, and Shenzhen [5] - Other cities are also progressing with their duty-free shop preparations, with Chengdu and Changsha expected to open their stores later this year [5]

Market Overview and Consumer Transition - The Chinese luxury travel market has shown significant recovery and transformation post-pandemic, with expectations that by 2025, China will become the largest luxury market globally, contributing half of the world's luxury consumption [1][37] - In 2019, Chinese consumers spent RMB 717.6 billion (USD 98.98 billion) on overseas luxury goods, accounting for one-third of global luxury consumption [1][37] - Hainan's duty-free shopping sales reached RMB 43.76 billion (USD 6.04 billion) in 2023, but are projected to decline by 29.3% in 2024 due to the resurgence of international travel and the influence of daigou [1][38] Consumer Behavior and Digital Payment - High-net-worth outbound travelers in China spend an average of over RMB 50,000 (USD 6,900) annually on luxury goods, with 38.2% spending between RMB 50,000 and RMB 200,000 [2] - Digital payment methods are prevalent, with WeChat Pay accounting for 56% of transactions, followed by bank cards at 30% and Alipay at 6% [2] - Duty-free e-commerce platforms are enhancing user engagement through digital tools, with Alipay's mini-program achieving over RMB 100 million (USD 14.5 million) in daily sales [2] Social Media and Precision Marketing - Social media platforms like Xiaohongshu, Douyin, and WeChat significantly influence consumer purchasing decisions, with Xiaohongshu having over 300 million monthly active users [3] - Brands are leveraging data integration across platforms for targeted marketing, exemplified by Louis Vuitton's successful live-streaming event on Xiaohongshu [3] - The collaboration between a resort in Macau and payment platforms demonstrates the effectiveness of combining travel predictions with multi-screen advertising, achieving a 5.67 ROI [3] Future Trends and Emerging Opportunities - Popular travel destinations for 2025 include Japan, Thailand, Singapore, and Hong Kong, with a growing focus on experiential luxury driven by Gen Z consumers [4] - Trends such as cultural immersion, sustainable travel, and the rise of digital nomadism are emerging, indicating a shift towards unique and personalized travel experiences [4] - Brands are encouraged to utilize digital tools and local experiences to meet the demand for "experiential luxury" among high-net-worth travelers [4] Insights into High-Spending Outbound Travelers - High-spending outbound travelers are defined as those spending RMB 300,000 (USD 41,000) or more annually, primarily from tier 1 and new tier 1 cities [50] - The demographic profile shows a significant presence of millennials and Gen Z, with 40.6% born in the 1990s and 4.3% after 2000, indicating a shift towards younger consumers [69] - The average travel duration for high-spending travelers has increased, with 77.2% traveling for more than five days, reflecting a trend towards longer stays in popular destinations [66] Transportation Preferences - Air travel is the preferred mode of transportation for international journeys, with over 95% of travelers opting for flights to most destinations in 2024 [59] - The reliance on car rentals has drastically decreased, while train travel has seen a slight increase in certain locations [59][61] - The top three destinations for high-spending travelers in 2024 are Hong Kong, Tokyo, and Bangkok, all located in Asia, highlighting a regional preference [55]