2025-11-03 03:32Summary of China Tourism Group Duty Free (601888.SS) Conference Call Company Overview - Company: China Tourism Group Duty Free (CTGDF) - Ticker: 601888.SS - Market Cap: Rmb157.4 billion / $22.1 billion - Enterprise Value: Rmb132.1 billion / $18.6 billion - Price Target: Rmb70.00 - Current Price: Rmb76.07 - Downside: 8.0% Key Financial Results - 3Q25 Net Profit: Rmb452 million, down -29% YoY to Rmb412 million excluding one-off items, significantly lower than Rmb1.9 billion in 1Q25 and Rmb657 million in 2Q25, totaling Rmb3 billion for 9M25, which is 72% of the full-year forecast [1][21] - Revenue Stabilization: Revenue stabilized with a flattish YoY change in 3Q25 compared to -11% and -8% in 1Q25 and 2Q25 respectively, maintaining a gross margin of ~32% [1][21] - G&A Expenses: Higher general and administrative expenses contributed to operating de-leverage [1][21] - Net Interest Income: Rmb129 million, down from Rmb212 million in 2Q25 [1] Dividend Declaration - Interim DPS: First-time declaration of an interim dividend of Rmb0.25, representing only 16.9% of earnings in 9M25, with management considering this as a potential regular practice due to strong financial position (Rmb28.8 billion net cash at end-3Q25) [2][21] Hainan Duty-Free Sales - Sales Recovery: Hainan DFS sales turned positive since September (+3% YoY), continuing into the Golden Week holidays (+14%) [2][18] - Shopper Metrics: Per-shopper spending stabilized at Rmb5-6k, but shopper conversion ratio bottomed at 17-18% [18] - Policy Relaxation: New DFS policy effective from November 1st, expanding eligible product categories and allowing travelers from other countries to make purchases in Hainan [18][27] Airport and Online Sales - Airport DFS Revenue: Estimated to have bounced back by +15% YoY, while online sales faced intense competition, resulting in a -5% YoY decline [19] - Revenue Breakdown: Excluding Hainan DFS, airport and online segments generated Rmb6.3 billion in 3Q25, a +2% YoY increase [19] Cost Management and Future Projects - Cost Control: Management aims to maintain gross margins at 32-33% through economies of scale and favorable supplier negotiations [19] - Inventory Management: Inventory days reduced from 215 to 135, then increased to 193/195 due to product replenishment ahead of peak season [19][20] - New Project: Sanya downtown DFS mall phase 3 is on track for launch in FY26E [20] Valuation and Outlook - Revised EPS Estimates: FY25E EPS estimates revised down by -12%, with FY26-27E forecasts largely unchanged [21] - Target Price Adjustment: 12-month target price raised to Rmb70/HK$61, applying a mid-cycle P/E multiple of 30x [21] - Neutral Rating: Maintained due to skepticism about resuming high double-digit growth rates seen in FY20-22 [21] Additional Insights - Competitive Pricing: CTGDF remains competitive against cross-border e-commerce and duty-free channels in Japan, Korea, and Hong Kong [18] - Market Trends: Improvement in sales trends aligns with broader high-end spending recovery observed in other industries [21]