2025-09-15 13:17Summary 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.