\u3000\u3000 China Tourism Group Duty Free Corporation Limited(601888) (601888)
Event: China Tourism Group Duty Free Corporation Limited(601888) released the performance express for 2021. In 2021, the revenue was 67.669 billion yuan, a year-on-year increase of 28.65%, the net profit attributable to the parent was 9.592 billion yuan, a year-on-year increase of 56.23%, and the net profit not attributable to the parent was 9.472 billion yuan, a year-on-year increase of 58.73%.
The impact of the epidemic is still significant, the provision of superimposed expenses may exceed expectations, and Q4 performance is under pressure. The corresponding Q4 revenue / net profit of the performance express is 18.17 billion yuan / 1.101 billion yuan respectively, and the net profit attributable to the parent company is 6.1%. We believe that there are two main reasons for the short-term pressure on Profitability: 1) the epidemic affects the discount strength and sales structure: the epidemic has continued in many parts of the country since mid October, resulting in a year-on-year decrease of 27% in the number of overnight tourists in Hainan in the fourth quarter, Due to the decrease of passenger flow and the pressure of sales target, China free Hainan maintained a 70% discount on three mainstream aromatics throughout Q4, with an average discount greater than Q3, and the high proportion of aromatics and online will also drag down the gross profit margin; 2) Expense accrual or exceeding expectations: the company accrues inventory impairment and salary bonus (included in management expenses) in Q4 every year. If there are many expenses in this part, it will also affect profits.
Tax free sales on outlying islands remain high. If the epidemic situation improves, the recovery of passenger flow will bring greater flexibility. According to the Department of Commerce of Hainan Province, the total sales volume of duty-free shops on Hainan outlying islands in 2021 was 60.173 billion yuan, a year-on-year increase of 84%. Among them, the annual tax-free sales volume was 50.49 billion yuan, a year-on-year increase of 83%, of which the tax-free sales volume from October to December was 14.95 billion yuan, a year-on-year increase of 31%; In 2021, the number of duty-free shoppers reached 9.6766 million, a year-on-year increase of 73%; The number of duty-free purchases was 53.4925 million, a year-on-year increase of 71%. Meanwhile, Hainan Province recently proposed to strive to achieve the goal of 100 billion sales of duty-free stores in 2022. Considering that the number of overnight tourists on the island in the second half of the year is only 74% of that in the same period of 20 years, the recovery of passenger flow will play a great role in driving sales after the epidemic is stable in the future.
The recent contraction of discount intensity is conducive to the recovery of 22q1 gross profit margin, and the long-term growth space and competitiveness remain unchanged. Since January 4, the mainstream discount of China free Hainan aromatics has narrowed from 70% discount for three pieces to 75% discount for three pieces. The discount intensity and scope of flash purchase activities have also shrunk compared with December. If the shrinking discount action can continue, the gross profit margin of 22q1 is expected to be significantly improved. After the two sessions of this year, if the epidemic situation continues to improve or the epidemic prevention policy is adjusted, both income and gross profit margin have great recovery elasticity. In the long run, we believe that the two logics of high growth of the duty-free industry and the global competitiveness of China tax exemption have not changed. The two key projects of xinhaigang Haikou international duty-free city and land 2 of Haitang Bay phase I are worth looking forward to. China tax exemption is still the leading target with high growth and strong certainty in the consumption sector.
Profit forecast and investment suggestions
As the epidemic has a great impact on passenger flow and discount, we adjusted the company’s earnings per share forecast from 2021 to 2023 to 4.91/6.06/8.08 yuan respectively (5.28/7.37/9.91 yuan before adjustment), and gave the company a target price of 257.41 yuan by DCF valuation method to maintain the “overweight” rating.
Risk tips
The epidemic spread in China exceeded expectations; Industry competition intensifies; Weak consumption power of residents; Risk of supply shortage of brand party, etc
