Overview of China Tourism Group Duty Free Corporation
China Tourism Group Duty Free Corporation Limited (CTGDF) is one of the largest duty-free operators globally. The company specializes in the duty-free travel retail business, offering a diverse range of products, including tobacco, wine, perfumes, cosmetics, accessories, clothing, and electronics. Additionally, CTGDF is involved in developing commercial complexes centered around its duty-free business operations.
Key Financial Performance and Stock Data
The share price of CTGDF stands at Rmb61.60, with a revised target price of Rmb69.70, reflecting an upside potential of 13.1%. The company’s market capitalization is Rmb125,596.7 million (US\$17,131.0 million), and the stock is listed under the Bloomberg ticker: 601888 CH. However, the stock has faced a challenging year, with its performance showing a 25.2% decline over the past year, and the 52-week range fluctuating between Rmb91.48 and Rmb53.52.
2024 Preliminary Results: A Miss on Expectations
CTGDF’s preliminary results for 2024 fell short of expectations, with revenue declining by 16% year-on-year (yoy) to Rmb56,492 million. Net profit dropped significantly by 37% yoy to Rmb4,263 million, missing market consensus by 24% and the analyst’s forecast by 32%. The operating profit was Rmb6,166 million (-29% yoy), with the operating profit margin contracting to 10.9% (-1.9 percentage points yoy).
In the fourth quarter of 2024, the company experienced a revenue increase of 15% quarter-on-quarter (qoq) to Rmb13,472 million, although this was still a 19% decline yoy. Net profit for the quarter was Rmb344 million (-77% yoy; -46% qoq), with a net profit margin of 2.6% (-6.5 percentage points yoy). Core net profit for the quarter stood at Rmb273 million (-81% yoy; -57% qoq).
Challenges in Hainan Duty-Free Sales
The Hainan duty-free market has been under significant pressure, with total offline duty-free sales in the region declining by 29% yoy to Rmb30.9 billion in 2024. The number of shoppers dropped by 16% yoy to 5.68 million, and per capita spending fell by 16% yoy to Rmb5,444. Despite these challenges, CTGDF’s market share in Hainan’s duty-free sector increased by nearly 2 percentage points yoy, attributed to the innovative “duty-free plus” shopping experience.
Recovery in Airport Duty-Free Sales
Contrary to the Hainan market, airport duty-free sales showed signs of recovery. Revenue from duty-free shops at Beijing airports, including Beijing Capital International Airport and Beijing Daxing International Airport, surged by over 115% yoy. Similarly, revenue from Shanghai airports, including Shanghai Pudong International Airport and Shanghai Hongqiao International Airport, increased by nearly 32% yoy.
Downtown Duty-Free Expansion
CTGDF is actively expanding its downtown duty-free presence. The company has secured bids for six downtown duty-free shops in Shenzhen, Guangzhou, Xi’an, Fuzhou, Chengdu, and Tianjin. Additionally, its downtown duty-free shop in Dalian has been reopened. However, the revenue contribution from these ventures is expected to remain limited in the near term.
Financial Forecast and Valuation
Key financial metrics indicate a challenging year ahead:
- 2024 Revenue Forecast: Rmb56,492 million (-16% yoy)
- 2024 Net Profit Forecast: Rmb4,263 million (-37% yoy)
- 2025 Revenue Forecast: Rmb63,743 million (+12.8% yoy)
- 2025 Net Profit Forecast: Rmb4,986 million (+17% yoy)
CTGDF’s stock trades at a 2025F price-to-earnings (PE) ratio of 25.6x, with a revised target price of Rmb69.70, reflecting a 28.9x 2025F PE. The company’s dividend yield is forecasted to rise to 2.0% in 2025 and 2.5% in 2026.
Risks to Consider
Analysts highlight the following risks:
- Slower-than-expected recovery in Hainan’s duty-free consumption.
- Potential deepened discounts impacting profitability.
Recommendation
Despite the challenges, UOB Kay Hian maintains a BUY recommendation for China Tourism Group Duty Free Corporation. The company’s innovative strategies and expansion efforts, coupled with a gradual recovery in airport duty-free sales, provide a positive outlook. However, the target price has been revised downward by 20% to Rmb69.70.
