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.

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